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

Directors should be mindful of future investment and changing values post pandemic

future investment and changing valuesBusinesses planning their post-pandemic strategy are likely to be seeking future investment to shore up their balance sheets but directors will need to be mindful of the changing values of stakeholders and in particular those of their customers who in turn are influencing investors.
Before the immense disruption caused globally by the onset of the pandemic, climate change, global warming and the need for a more sustainable form of economics were a major preoccupation.
That preoccupation has not gone away.
While physical attendance at a second summit on ethical finance by international delegates from Government officials, financial institutions, consumer goods corporations, supply chain intermediaries and conservation organisations planned for Edinburgh this month has had to be cancelled, it has now been replaced by a virtual summit.
And this month, the UK’s Investors Association published a paper on the future of investment in which it, too, identified the importance going forward of ethical investment highlighting:
…“Increasing importance of sustainable investment. There is growing customer emphasis on the material impact of sustainability issues on financial returns, notably among institutional clients, as well as a more prominent focus on setting non-financial objectives (for example, to invest in companies and projects that have specific social or environmental benefit).”.
The focus and emphasis among investors is very much on CSR (corporate social responsibility), or its replacement ESG (environmental, social and governance) which is becoming the criteria for oversight of behaviour and values and holding companies to account.
Changing consumer values have been highlighted by others, including the retail “guru” Mary Portas, who has been promoting what she calls the “kindness economy” where, she argues, that shoppers may now be more alert to how businesses treat them, their workers and the planet.
Former BoE (Bank of England) governor Mark Carney also referred to this growing awareness in an article in the Economist last April, where he said that “fundamentally, the traditional drivers of value have been shaken, new ones will gain prominence” and where “public values help shape private value”.
These are issues that company directors will need to be mindful of when formulating their post-pandemic business plans, especially if the plans involve securing future investment.
Returning to pre-pandemic “normal” is not likely to be enough for business survival as the desire among both investors and consumers is for more ethical values and this has not been eroded by the pandemic.

Categories
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?

Categories
Uncategorized

Coronavirus Business Interruption survival will need agility not pride

Agility is essential for business survivalArguably, all successful businesses need to exercise agility in a fast-changing world, but never more so than now in the midst of the Coronavirus pandemic.
While there is nothing wrong with having pride in your business, pride is also associated with sticking doggedly to a plan that is not working due to a change of circumstances. Just because you have always done things one way doesn’t mean that way is always right in normal circumstances, let alone in abnormal ones like the current situation. In a crisis everything you do should be challenged and often fundamental change is necessary if a business is to survive.
Business agility is therefore a key attribute for dealing with adverse circumstances, to be creative and adapt to the changing environment. This in particular applies to three main areas: staff, customers and processes.
Social distancing has meant that for some businesses their staff have had to work remotely while others are needed in the office to maintain systems. This has involved setting up new policies to protect staff who need to come into work, while at the same time making it possible for others to work from home and keep in touch. Equipment for remote workers, remote access to central servers, online security, new ways of working together and new forms of communicating have all had to be learnt very quickly. Better this than some companies who simply closed their doors when the big bad wolf began prowling.
There are terrific examples of firms that have adapted by changing their business completely such as restaurants that have switched to offering ready-meals for either collection or delivery, enabling them to keep going after they were forced to close their doors as part of measures to contain the spread of the virus.
Others, among them distilleries, have switched their production lines to manufacture such products as hand sanitisers and engineering firms that now make ventilator equipment for hospitals.
Some clothing manufacturers have switched to producing hospital protective clothing of various types.
A wholesale bakery client has had to replace its traditional hotel and restaurant market and now supplies market stalls, independent retailers and farm shops with its turnover nearly back at pre Coronavirus levels, all in six weeks and very different from their initial assumption that they should cease baking.
Another client, a plant and equipment rental company, now supplies the new Nightingale hospitals when it too had assumed it should close down.
A local pub now sells garden bedding plants from its front gate and has shown far more initiative than the local garden centres that have all closed down.
With consumer behaviour having radically changed as a result of the self-isolation rules, many retailers have massively increased their online presence, although it has to be said that when people are worried about their futures and their finances there will inevitably be a reduction in the purchase of non-essentials even online.
Perhaps the most agile and innovative have been the smaller SMEs, particularly tech support companies and gyms, who have taken their services online, producing regular teaching and remote IT problem solving services to help people. Many have offered a combination of part-free and part paid-for services, which are likely to be remembered by those they have helped once life has returned to normal, however different that “normal” may turn out to be.
As economies move out of the containment phase and some restrictions are loosened or removed altogether, your business will need to remain agile. There is some good advice from Accenture here.
It will not be a case of returning to the status quo-ante and it is too soon to be able to assess how customer and client behaviour will have changed in the medium term, so it may be that your business will have to develop a permanently agile mind-set in order to survive and remain resilient in the face of changes in both consumer behaviour and structural change in industries and the economy.
This may mean changing your business model and plan and paying much more attention to markets and demand.
A prerequisite to surviving a crisis is the ability to overcome the natural feelings that can overtake rational thinking. Emotions such as fear and anxiety relating to the unknown, the unanticipated event, a loss of control and unpredictable outcome are all natural but they need to be suppressed to allow rational behaviour and creativity to emerge as the way of finding solutions and new initiatives for dealing with the new circumstances.
It doesn’t matter that many initiatives won’t work so long as pride doesn’t get in the way and you acknowledge you were wrong and try something different. Paralysis and inaction are the real enemy.
For details and my free guide covering all the government Coronavirus Interruption Support initiatives check out the Online Turnaround Guru website.
While it is fine to have some pride in how you may have steered your business through the early stages of this crisis and survived, it is worth remembering the old saying “pride comes before a fall” so it is worth remembering the lessons we gain from experience. And, while we don’t know what we don’t know, we can always keep looking for answers and keep asking questions.

Categories
Accounting & Bookkeeping Cash Flow & Forecasting Finance Insolvency Rescue, Restructuring & Recovery

Get expert help with cash flow management in a crisis

cash flow crisisIn the current pandemic situation, many businesses deemed non-essential have been forced to temporarily close for a lockdown period and it is clear that many SMEs will have serious cash flow problems when they resume trading.
Unfortunately, the cash flow problem won’t go away even though for the moment it is easy to ignore it by holing up at home.
While it is true to say that all businesses should have plans for dealing with emergencies and reserves for cash flow problems, it is unprecedented to have to deal with a period of no income and it is becoming clear that many SMEs – and larger businesses – do not have sufficient cash reserves to survive a lengthy lockdown.
Many are telling me that they paid their staff wages for the first month in anticipation of furlough support arriving in time to fund a second month but they are concerned about the Government’s promised CJRS (Coronavirus Job Retention Scheme) arriving in time to pay April wages. As for paying other liabilities such as rent, finance and fixed overheads many of these are being ignored since most SMEs rely on income to pay bills.
It is easy to be wise after the event but, as I have said in my blogs over many years, it is crucial for a business to pay attention to its cash flow and to build up reserves to cushion it from sudden shocks. And yes, as an aside, I do hate factoring and invoice discounting since these only help fund growth and no business can guarantee growth such that in a decline they often starve a business of cash.
While the current situation is unprecedented and it is no surprise that you as a SME owner may be very frightened, it is unlikely that you are in the best position to think clearly about the steps you need to take if cash is running out.
In March, the website Small Business said¨” many small businesses could be forced to make difficult decisions in the coming weeks. Depending on their financial position, some small businesses could start to experience cash flow difficulties very quickly …”
Among its tips for dealing with cash flow crises it advises that you should prepare a cash flow report before seeking financial help such as a time to pay arrangement.
It is helpful to get expert advice to deal with your situation and in particular helping produce the information needed to raise finance and for negotiating with finance companies, HMRC and other creditors.
Crisis management when a company is in financial difficulties is about quelling the understandable panic so that you can manage cash flow and take a long, hard look at the financial and operating options for survival and ensuring the business is viable. This is why objective expert help is so important.
As I said in my blog in February this year: “The most likely immediate priority in managing a liquidity crisis is reducing costs while maximising income.
“So, the first step in managing cash is to construct a 13-week cash flow forecast to help identify risks and actions that can be taken to reduce them. It should include income from sales and other receipts and outgoings, both to ongoing obligations such as rent wages and finance and to creditors.”
It is easy to say with hindsight that SMEs should have built up cash reserves when times were less challenging but you are where you are and calling on an expert to help you with cash flow management will give you a better insight into how you might be able to keep your business afloat.
You can find out more about the government financial help available in my free downloadable guide.
https://www.onlineturnaroundguru.com/support-for-smes-struggling-to-deal-with-coronavirus-pandemic
 

Categories
Uncategorized

In a crisis it is crucial that SMEs keep staff updated, especially those working at home

working at homeIn the current Coronavirus-induced crisis people are understandably worried and frightened, for their jobs, their families and their health so it is crucial for SME employers to communicate changes as quickly and sympathetically as possible.
After all, while you as SME owners are currently facing unprecedented challenges to your business and feeling bleak if not panic ridden about your prospects for survival, at some point this crisis will come to an end and you will hope to still have a business.
With all the financial support measures recently announced by the Government, most SMEs do not need to close their businesses or dispense with staff.
I have posted the latest information with advice for SMEs on how to deal with the coronavirus pandemic on onlineturnaroundguru.com and will update as the details become clearer.
While in the short term SMEs may have had to ‘furlough workers’ (see the above advice link for what this means) but eventually staff will be needed back at work.
Staff are most likely to remain loyal if they feel their employer has done their utmost to help and has kept them informed of developments and these days the technology available is so extensive that this is much easier to do – whether it be a conference call or virtual meeting via an online platform to people who are working from home.
McKinsey.com has some very useful guidance for leaders coping with a crisis.
Firstly, it says: “they cannot respond as they would in a routine emergency, by following plans that had been drawn up in advance. During a crisis, which is ruled by unfamiliarity and uncertainty, effective responses are largely improvised.”
It is also crucial, it says, to promote “psychological safety so people can openly discuss ideas, questions, and concerns without fear of repercussions”.
This means dealing with the human tragedy first and foremost with empathy and understanding as well as being transparent about the circumstances.
If the situation means the way the company does business SME employers should discuss the options as soon as possible.
Acas also has some useful advice:
“Where work can be done at home, the employer could:

  • ask staff who have work laptops or mobile phones to take them home so they can carry on working
  • arrange paperwork tasks that can be done at home for staff who do not work on computers.

 
If an employer and employee agree to working at home, the employer should pay the employee as usual, keep in regular contact and check on the employee’s health and wellbeing.
You may be able to pivot your business in such a way that it can keep going, as this London SME restaurant chain has done after the Government ordered all restaurant and pubs to close.
Leon is to turn its 65 UK restaurants into shops, selling meals via both click-and-collect and delivery from Wednesday. Meals will be placed in ready meal-type plastic pouches which are refrigerated and can be heated, stored or frozen at home.
The company’s founder John Vincent has said the move could save Leon as a business but also relieve some of the pressure on the food retail stores: “A lot of people in the industry are just giving up and shutting up shop. But we think this way we can keep 60% of our stores open and keep food production going.”
A good example of a business using agility at very short notice to survive and save staff jobs when It is important to consider the second and third order consequences of any decisions before acting on them while not delaying action.
Check out onlineturnaroundguru.com for more tips on survival
Otherwise please stay safe, you do not need to deal with this alone.

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

A rise in Administrations in Q3 indicates that many businesses are just about hanging on

Administrations rise and businesses just hanging onThe newly-published insolvency figures for Q3 (July to September) show a massive increase in the number of businesses entering Administrations.
A mid-October report by Begbies Traynor reported that the number of British businesses in significant financial distress has risen by 40% since the Brexit vote – with those in the property, construction, retail and the travel sectors the hardest hit and 489,000 companies in significant distress up by 22,000 on this time last year.
This was followed by KPMG’s recent analysis of London Gazette notices of companies entering into Administration and the picture became clearer with yesterday’s statistics from the Insolvency Service.
Administrations increased by 20% in the last quarter, compared to the previous quarter, to reach their highest level since Q1 2014. CVLs (Company Voluntary Liquidations) rose by only 2.3% compared to the previous quarter but were still at their highest quarterly level since Q1 2012.
The category with most insolvencies was Accommodation and Food Services. This would suggest that dining out seems to have fallen out of favour with consumers increasingly ordering meals to be delivered and eaten at home. This was becoming apparent based on the frequency with which I have been reporting restaurant failures over the last year but is confirmed by the stats that show Food Services have come top of the insolvency list. Meanwhile the Construction Industry continues to struggle with the highest number of insolvencies over the last 12 months to the end of Q3 2019.
Notwithstanding changes in consumer behaviour and the plight of builders, there has been a steady rise in the number of insolvencies over the last two quarters which is no surprise given the ongoing economic uncertainty due to world trade, US sanctions and the Brexit farrago. Meanwhile investors and businesses remain understandably wary about planning for growth – or even planning for future trading given the level of uncertainty and lack of prospects for many businesses. All this is against a backdrop of a weakening of the global economy.
Therefore, just hanging on is often the only option for many businesses who simply want to survive rather than plan for growth where the alternative is insolvency, often via Administration.
The Insolvency Service defines Administrations’ purpose as “the rescue of companies as a going concern, or if this is not possible, then to obtain a better result for creditors than would be likely if the company were to be wound up”. All too often Administrations end up as Liquidations following a sale of the assets with companies rarely ever surviving Administration.
K2 is in the business of helping companies to survive and restructure and has several guides to help when they are in difficulties.
If you would like to know more about your duties and responsibilities as the director of a company, with particular emphasis on knowing if your company is insolvent and what to do if it, you can download the Guide to Directors Duties here.
https://www.onlineturnaroundguru.com/Directors-duties
 

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

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

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

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

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

Categories
Business Development & Marketing Finance General

SME owners need to pay more attention to their own mental and physical health

mental and physical health benefits of natureThere is plenty of evidence that owning and running a SME leaves little spare time to pay attention to their mental and physical health.
Research by Opus Energy earlier this year revealed that SME owners in the UK work an average of 2,366 hours per year in order to make their business a success, working an average of 45.5 hours per week (compared to the average full time working week of 37 hours). More than half (56%) of owners reported working either six or seven days per week.
It also found that 14% percent of all entrepreneurs say that they don’t take any time off while a quarter (23%) claim that they have to work even when on holiday.
A survey by Yorkshire Bank in April found that a quarter of small business owners across the UK sacrifice time with friends and family and around 30% of UK business owners have sacrificed their work-life balance. This results in detrimental effects on their mental and physical health.
In May the FSB announced a partnership with Heads Together, a project run by the Royal Foundation, to raise awareness about mental health in SMEs.

Ignoring your mental and physical health can take a toll on your business

In an economy that relies heavily on the thousands of SMEs, this situation has some worrying implications.
Given the significant rise in the numbers of SME owners reporting burn out, what will happen to the continuity, efficiency and potential growth of their businesses?
Is it a case of business owners not organising their time efficiently, or taking on too much, or unable to delegate, or simply not saying “no”?
There is no doubt that the regulatory and administrative burden on SMEs is considerable – from Business Rates, employee and pensions administration, Health and Safety regulations, tax and legislative changes, such as Making Tax Digital and increasing demands from corporate customers, suppliers, landlords and banks to complete compliance documents.
In addition, there has been a level of stress and anxiety relating to uncertainty following the financial crisis of 2007, the lack of any subsequent growth and more recently the downturn in the global economy. As well as other elephants in the room.
However, there are some things business owners could do to allow them to take better care of their mental and physical health.
The first may be to simply to stand back from their business and take stock. With the help of a mentor they can objectively assess how they use their time and suggest improvements.
As a consequence of this it may be that the business owner needs to be more self-disciplined and focused on working on their business rather than in it. Having a daily work plan, with space in the diary for reflection, cutting back on meetings, actually building in thinking and leisure/exercise time. Such discipline and sticking to a plan can be helpful.
Outsourcing or delegating functions is another option. Many SME owners find it difficult to trust others to do some tasks, but actually, if they want to grow their businesses, they need to ensure they have a team of key people capable of taking over some of the workload.
The mental and physical health benefits of simple things like a walk cannot be over-emphasised. Finding a way to de-stress, to let the mind roam and reflect on problems often leads to new ideas and solutions that were not initially considered.
Lastly, spending time with friends and especially family should not be at the bottom of the priority list. After all, a large number of SME owners say that they originally started their businesses in order to have more freedom to manage their work-life balance. Sadly, too many of them are finding that the decision has had the opposite effect.

Categories
Accounting & Bookkeeping Cash Flow & Forecasting Debt Collection & Credit Management Finance

Fine words are not enough to enforce the Prompt Payment Code

Prompt Payment Code: late payment penalty?Last week saw two announcements on the ongoing issue of late payments by large companies to SMEs, both described as measures to end the problem.
The first announced the appointment of Paul Uppal, Small Business Commissioner, to the Prompt Payment Code’s Compliance Board alongside a promise from business secretary Greg Clark to strengthen the voluntary Prompt Payment Code.
The second, by Small Business Minister Kelly Tolhurst, was a call to submit evidence to help the Government to identify “the most effective way possible to tackle this issue once and for all”. The deadline for submissions is November 29 and you can find out more here. Her press release states: “Nearly a quarter of UK businesses report that late payments are a threat to their survival.”
According to the Times, Mr Clark had also promised that 90% of undisputed invoices from SMEs on Government contracts would be paid within five days. He also floated a proposal to make company boards appoint Non-Executive Directors with responsibility for supply chain practice.
In view of the IoD’s (Institute of Directors’) estimate that late payments put 50,000 SMEs a year out of business, I make no apology for revisiting this appalling situation for a fourth time this year, following my previous blogs on April 12, June 28 and a Stop Press on September 25 in which I mentioned a Times report that Mr Uppal had helped just nine SMEs with complaints since his appointment in December last year.
New research from Hitachi Capital, reported in Credit Connect, has also revealed that 17% of business owners say they are forgoing paying themselves a wage so they can pay their staff on time. This rises to 27% of small businesses that say they are already struggling to survive.

The history of action on late payment and the Prompt Payment Code

The Small Business, Enterprise and Employment Act 2015 made it mandatory for larger businesses (those with more than 250 employees or £36 million in annual turnover) to report their payment practices and performance on a half-yearly basis.
Non-compliance is a criminal offence, subject to prosecution. Yet since it came into force in April 2017 only 2,000 of the 15,000 businesses required to comply have submitted reports, and of these, some of the information has been inadequate. Despite the criminal aspects of non-compliance by 13,000 businesses, there have been no reported prosecutions.
In December 2017 Mr Uppal was appointed Small Business Commissioner with a brief, to support (my italics) SMEs in taking action on late payments and on making a complaint.
It was just a month or so later that Carillion, a known late payment offender and a signatory to the voluntary Prompt Payment Code, went bust and three months on from Mr Uppal’s appointment, as I reported, a survey by Close Brothers Invoice Finance found that 84% of those SMEs asked had little confidence that the appointment would have a positive impact on their businesses. It would appear that Boris Johnson’s two-word comment about business was prophetic.

Action that should be taken on late payment and the Prompt Payment Code

Perhaps I am being cynical but the latest Government announcements were made during the Conservative Party conference – no doubt to garner positive headlines in view of the general cynicism about the Government’s understanding of SMEs problems, especially given that businesses are becoming more public about the ongoing Brexit negotiations?  Time will tell.
As one commentator, Greg Carter, founder and chief executive of Growth Street, said in CityAM “At present, the Prompt Payment Code … dictates that invoices should be paid within 60 days, other than in ‘exceptional circumstances’. We’ve all seen now that these voluntary stipulations are worth little more than the paper they’re written on.”
He added “But no matter how energetic and effective the small business commissioner is, he must be supported with a robust, meaningful, and (crucially) enforceable code.”
This, surely, is the point. For SMEs to see any meaningful improvement in payment times, there must be a sufficiently strong set of penalties that are actually imposed to ensure businesses comply. As Mr Carter says in the article action needs to follow rhetoric. Failure to police the Small Business, Enterprise and Employment Act 2015 says it all.

Categories
Cash Flow & Forecasting General HR, Redundancy & Trade Unions

Businesses should not withdraw employee rights after Brexit

employee rights are importantAs negotiations between the EU and UK on Brexit resume this week, yet another business organisation, The British Chambers of Commerce, has warned that business patience is “wearing thin” over the lack of clarity about the kind of deal being pursued.
In an open letter the BCC’s president Francis Martin and director general Adam Marshall wrote: “Businesses need those elected to govern our country to make choices – and to deliver a clear, unequivocal statement of intent.”
While the focus at the moment may be on the transition period and the eventual trade deal the legal protections for employees are another area of uncertainty for businesses.
In January an article in the Independent warned that many of these rights were enshrined in EU law and could be at risk after Brexit.
They include restrictions on hours worked imposed by the EU Working Time Directive, time off from work, rights to paid holiday and unpaid parental leave, and anti-discrimination laws.
Most vulnerable will be low-paid and “gig” economy workers on zero hours contracts, but there are implications for all employees.

There are good reasons for businesses to maintain employee rights after Brexit

Some employers might see Brexit as an opportunity to reduce employment rights and get more for less from their staff, especially given the likelihood that overseas trade is likely to become even more competitive and costly.
However, there are two major considerations for not following this route.
Firstly, there is already a well-known skills shortage in some sectors, notably Engineering, IT, construction and health care. To at least partially fill the gap businesses have been relying on EU migrant labour, while others have got the message that training existing employees and embarking on apprenticeships is important for the future but this will take time to feed through into a skilled workforce.
Secondly, the UK has been enjoying record levels of employment, which means the pool of available labour is very limited.
But businesses need to plan their staffing needs and in particular how they will recruit and retain staff in a competitive labour market. This might also encourage them to think more about how employees are truly valued. “My people are my greatest asset” might yet become a reality rather than a hollow phrase trotted out by companies that don’t make the effort in a way that is appreciated by their staff.
There is ample evidence that job security is a prerequisite for employee engagement. Job insecurity usually leads to increased absenteeism and staff turnover, decreased productivity and lower levels of trust in employers.
If employees are uncertain about their security, their employment conditions and their rights after Brexit they are unlikely to be committed to their employer.
Communicating and reassuring employees is the key to keeping them involved and feeling valued where failure to do so leads to reduction in productivity.
They really are your greatest asset.

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

Insolvencies rise in 2017 marking a difficult year for business

insolvencies rise signalling storm clouds overheadThe highest numbers of insolvencies throughout 2017 occurred in the construction and retail sectors according to the lnsolvency Service’s latest revelations on the state of business in England and Wales.
The figures published on January 26 2018 alongside the insolvency statistics for the quarter from October to December 2017 (Q4) showed that overall insolvencies have continued to rise compared with 2016, by 2.5%.
While the numbers of businesses liquidated via administration and CVAs (Company Voluntary Arrangements) both fell, there was a significant increase in those closed by Creditors’ Voluntary Liquidations (CVLs) – up by 8.2%.
A CVL is used by a company’s directors choosing to voluntarily bring the business to an end by appointing a liquidator.
The results indicate that there was a degree of uncertainty for businesses throughout 2017 in the context of the ongoing and opaque negotiations on Brexit, a point reinforced by Duncan Swift, deputy vice president of R3, the insolvency and restructuring trade body.
He said: “The slight rise in corporate insolvencies across 2017 as a whole is a reflection of the difficult year that firms throughout England and Wales have been through,” adding that since 2016 the trend of falling insolvencies had reversed.
Among the “additional headwinds” he cited for 2017 have been the business rate changes, the increase in the National Living Wage, the final stages of pensions auto-enrolment inflation eating into margins with customers reining in on spending.
Clearly it has all been too much for the 15,112 businesses that were declared insolvent in 2017.
On the plus side, manufacturing has been enjoying steady growth due to the weaker £Sterling, and lower numbers of insolvencies between Q3 and Q4, “could hint at improving business conditions overall” he said.
Nevertheless, 2018 is not looking like a time when businesses can relax their vigilance on cash management and I would advise them to be diligent in strengthening their debt collection and credit monitoring to improve cash flow and avoid being caught out by extending credit to future insolvencies like Carillion.

Categories
Cash Flow & Forecasting Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs Winding Up Petitions

Surviving a Winding-Up Petition

WindingupPetition helpA Winding-Up Petition need not be the end of a business, but it does require prompt and decisive actions if the business is to survive.
Given that a Petition is usually served when a creditor, be it a supplier or HMRC, has run out of patience, a review of both the financial position and the future prospects is necessary before considering the options for dealing with the Petition. There are several.
When a company’s financial position and cash flow forecasts are dire it is not likely to have the funds to pay off the debt such that financial restructuring is often needed if the business is to be saved.
In addition, the cause of the financial situation is often the business model where an operational reorganisation is also often needed if the business is to survive.
Both the review and implementing change are not something to be undertaken without experience where the help of a turnaround expert is necessary.
Turnaround experts, also called Company Doctors or Restructuring Advisers, will be able to put together a strategy to deal with the immediate need to answer to the court on the required date, will be able to advise on what you are legally obliged to do and will help you to plan a strategy for the future of the business.
There are three main options for dealing with the first hearing of a Winding-Up Petition.
If the business believes that it does not owe the amount stated in the Petition, it can dispute the debt and ask for the petition to be withdrawn and apply to court to stop it being published in the London Gazette.  However, any dispute needs to be credible, and supported by evidence that will be examined as part of the directions (dispute) procedure.
If the review identifies a viable business but the Petition debt cannot be paid before it is heard then a long-term payment plan may be best using a CVA (Company Voluntary Arrangement).  CVAs require consent of a requisite majority of creditors and can also be used to write off a portion of the debt but all too many fail because they are not based on a turnaround plan that is prepared by a suitably experienced adviser.
While there are other options these are covered in the CVA Guide and free articles that are available online in the ‘K2 Knowledge Bank’ or via App Stores in the ‘Turnaround’ App.

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

Stressed? Doing nothing is not an option

K2 Blog December 10 2015 OstrichDepending on personality type, people react differently to stress and the feeling it brings of being overwhelmed.
However, being frozen with fear when a business is in difficulties is really not an option if its owners want the business to survive.
According to Jeff Bezos, founder of Amazon: “Stress comes from not taking action over something that you can have some control over.”
But often in a particularly fraught situation, when it feels like there is no time to think, it is difficult to recognise the signs of stress so the first step is to recognise the symptoms. The physical symptoms may be a stiffening of the neck, sweaty palms, lethargy, displacement behaviour or the stomach clenching. The other symptoms include inertia, fear, anxiety, worry, feeling out of control, avoidance, inability to make decisions, catastrophising to see the worst possible outcome, or simply doing trivial things to take the mind off the problem.
Once you have recognised the signs you can start to address the causes.  Part of this is to analyse the situation and to break it down into manageable chunks. The other part is to research the causes and get help.
It may help to rethink your attitude to the situation so that you see it as one where there is an opportunity to move forward.
That will lead to breaking down possible actions into small steps, such as making that phone call to HMRC, if the business is having problems paying bills on time, or sending an email or calling a late-paying customer.
It also means identifying those things in the situation that you cannot deal with alone and accepting that there is a need for expert help, or even just talking to someone trustworthy who can provide a different perspective.
Breaking a difficult situation into manageable tasks is a great stress reliever.
Doing nothing is not an option.

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

SME – Supplier relationships should be nurtured

If a business is to survive it needs to manage relationships with both its own suppliers as well as with customers. It also needs to consider the risk of being dependent on a supplier or customer.
The revelations about suppliers to Tesco and now Premier Foods are a graphic illustration of the danger of relying too heavily on one customer. A dominant customer can exert control over prices and margins and as in the case of Tesco, demand a raft of marketing support fees.
There is a point when the relationship can become no longer economically viable but if you are not prepared it can be impossible to terminate without putting your own business’ survival in jeopardy.
Many SMEs in particular, like farmers, have been forced out of business by not being able to say “no” to the demands of their supermarket chain customers. Research by accountancy firm Moore Stephens has recently revealed that 146 food producers have become insolvent this year, an increase from 114 last year, in part because of supermarket price wars.
It is not only an issue for food producers and superstore supply chains. Some years ago the Ford motor manufacturer put similar downward pressure on its suppliers, many of whom went bust. In the end Ford had to buy some out of insolvency in order to ensure continuity of supply and its own survival.
The lesson is that SMEs should not only avoid becoming locked into supplying only one customer, but also to learn to say “no” to pressure.
No business can exist in complete isolation. If businesses treat others as fairly as they expect to be treated themselves, then ultimately everyone in the supply chain can survive and benefit.

Categories
Accounting & Bookkeeping Banks, Lenders & Investors Business Development & Marketing Rescue, Restructuring & Recovery Turnaround

A safe pair of hands does not include plans for growth

UK companies are reportedly hoarding as much as £700 billion in cash. Despite this, business investment grew by just 1.7% in June, according to Bank of England Governor Mark Carney, in his first speech to businesses in Nottingham.
It appears that businesses are still not confident of sustained economic recovery, and this may be understandable following the shock waves after the onset of the global economic crisis in 2008.
When times are hard the general rule is to put an accountant in charge as they will basically hoard a company’s cash.  Accountants are generally pretty risk averse and when the emphasis is on controlling cash flow they are a mainstay of business survival.
But at what point in the cycle should companies start to look at investment and growth for future profits? And at what point should accountants take a back seat and hand over to someone else?
In UK we tend to be slow to adapt to changes in the market. Let’s face it no one will criticise managers for not losing money. Only too late will shareholders realise they have been left behind.
We are still pursuing a strategy of hoarding cash when perhaps the time has come to shift from pessimism to optimism and at the very least we should be planning for growth. Now is the time for carrying out market research, modest investments, testing markets and building capacity for growth. 
We need managers with courage, managers who value mistakes and will learn from them, managers who know how to grow businesses.