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Banks, Lenders & Investors Business Development & Marketing General Turnaround

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

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

Accentuate the positive in SME forward planning

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

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

UK Steel – how can business operate in a global market?

word cloud on global tradeLast week’s decision by Tata to sell off or close its UK steel operations graphically illustrates the challenges for UK businesses in competing in a global market.
Among the explanations for the decision have been a sluggish world economy, falling commodity prices, and a glut in steel production.
Specifically, there is the huge imbalance created by China’s subsidy of its own steel industry enabling it to corner more than 50% of the world’s steel market and to sell at prices with which other producers cannot hope to compete.
Arguably UK steel’s problems have been compounded by high energy costs and by Government unwillingness to subsidise the industry, or to introduce measures to encourage UK industries to “buy local” or to impose tariffs on imported steel. The other factor is high business rates which for Port Talbot are set by the labour leadership in Wales so this is not a party political issue.
Ironically, skill shortages and the mobility of labour are perhaps the only issues that the industry does not have to face. Instead its skilled workforce may be facing extinction.
While there are signs of potentially interested buyers for parts of the industry the whole saga does illustrate some of the problems businesses face in trying to compete in an increasingly global market.
These are well rehearsed. They include disparate labour and energy costs, high business rates and clean energy tariffs, different conventions in different countries about how business is regulated and conducted, and the volatile behaviour of investors, commodity markets and global demand; all difficult to harmonise and all particularly affecting industries with long lead times between order and fulfilment.
There is no such thing as a level playing field despite the existence of the World Trade Organisation (WTO), which attempts to investigate and regulate complaints of unfair trading via the General Agreement on Trades and Tariffs (GATT).
Resolving disputes is a lengthy process as exemplified by  the time it took for the WTO resolve a complaint raised by the USA, supported by the EU and Japan, in March 2012 about China’s rationing of supplies of Rare Earth Metals by imposing export tariffs and physical export limits. China has the majority of the world’s deposits of Rare Earths that are essential to the manufacture of electronic goods from mobile phones to car batteries. It took until March 2015 before the situation was resolved and China agreed to remove its restrictions.
The process of negotiating inter-state or inter-continental free trade deals is equally lengthy.
What business can wait that long for an inequitable situation to be resolved?

Innovation, agility and collaboration

However, there are ways in which a business can be more innovative and agile. In an article in the Daily Telegraph on April 3, 2016, Chris McDonald argues that steel production does not need to disappear from the UK manufacturing landscape: “Two-thirds of the steels in use today were not even invented 15 years ago……….” he says. “Automotive, aerospace, defence, nuclear and rail constantly require the innovation and manufacture of new steels, which form the core of improving productivity.”
He argues that if domestic producers and end users partner with research and production moves to smaller, more specialised mini operations using electric arc furnaces  the result will be a more responsive, innovative and flexible UK steel industry.
Perhaps there are lessons here for other businesses and industries. Off shoring on cost grounds may not be the only competitive answer to survival if it slows down development and production times.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Creative thinking and innovation are crucial to manufacturing growth

Addressing the challenges facing UK manufacturing requires creative thinking, innovation and fundamentally investment if it is grow in the medium and longer term. Especially where real growth can only be achieved by exporting those products and services we provide.
Unfortunately, too many of the analyses published in the media focus only on the short term and are often also simplistic.
Where one commentator suggests that manufacturing is benefiting from the reduction in oil and raw materials prices, another focuses on the difficulties that the high value of sterling causes for exports. Where one analyst sees a continuing downward trend from the first two quarters of 2015, another focuses on the expansion in trade shown by an increase in trade and orders in October.
All this suggests that it is foolish to draw conclusions for the whole sector and that what may be helpful to one manufacturer can be a problem for another.
For example a manufacturer of specialist equipment for the oil industry is likely to see a contraction in orders due to the contraction in the oil industry whereas a manufacturer that relies on fossil fuels for energy may actually benefit from energy cost reductions.
However, these are relatively short term fluctuations and in the longer term all UK manufacturers need to play to their strengths, which are their reputation for high-quality, precision and speed of supply.
UK manufacturing cannot hope to compete in the mass market with competitors from places like Asia where wages are lower.
It may be that their most sustainable route to success and growth is to focus on using doing things differently and using innovative technology such as robotics, on supplying high-quality short run products, and on offering support and maintenance services that all rely on their valuing skilled engineers and technicians.
All this means investing much more in R & D, technology, plant & machinery and employee skills.
Essentially we need to invest in manufacturing if it is to grow and in particular if we want to grow exports.

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

How can SMEs pay for innovation?

SMEs are the lifeblood of an economy and generally have been the most innovative businesses.
It is often said that while the big corporations have the resources for large-scale, ongoing R & D their effort is largely focused on existing products.
But while historically many new ideas have originated from inventors “tinkering” in their spare time, this is less likely in the 21st Century.
Very few SMEs will have a turnover with a sufficient margin to allow for funding ongoing research and development, especially in the highly technical, software, biomedical and scientific fields.
Yet to survive and prosper, SMEs need to find their niche and then innovation to stay ahead of the competition. Can this be done?
There are a number of options. In the UK there is the STEM (Science, Technology, Engineering and Maths) project in schools, supported by businesses, which is designed to encourage the next generation of innovators.
There are also collaborations between businesses and universities, both in the UK and elsewhere.
There is also an EU programme specifically designed to support innovative SMEs with funding and by connecting them with mentoring and other partners. Horizon 2020 can invest up to £2 million in a company and is worth looking at if you are truly innovative: www.h2020uk.org/smes.
Do also contact us at K2 as we are familiar with this and other sources of finance.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Family businesses surviving the centuries

 

According to the Institute for Family Businesses there are 3 million family firms in the UK and they represent two in every three UK private companies.

Moreover, some of these companies have endured and prospered for almost 500 years.

A recent article in the BBC magazine http://www.bbc.co.uk/news/magazine-25711108 provided a fascinating insight into some of these firms as well as asking how they had managed to survive for so long in a changing world.

They were a diverse bunch, from a family butcher that started with a market stall in Dorset in 1515, to a building company from Kent that has been trading since the reign of Elizabeth 1.

Two things stand out clearly in their survival.  They are attention to customer service; and a willingness to innovate.

Arguably trading conditions have never been tougher than they are in this the 21st Century with customers able to access global suppliers so for any SME owner who is competing in the current market these stories provide a lesson and encouragement.

With a positive attitude, with support from an experienced business advisor as and when needed, and with proper planning and focus on cash flow many SMEs could still be around for the next half millennium.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Politicians and Economists are failing SMEs

Investment in innovation has to be a long term strategy while the UK’s fixed term parliamentary system and the need to grab headlines encourage short term thinking.
The evidence is piling up for all to see.
Firstly, research by the Big Innovation Centre has emphasised, if it were needed, that there is a “systemic failure” holding back the economy shown in part by the worsening of access to finance to SMEs and in particular to those developing entirely new products and processes.
Yet these new innovative SMEs are the most likely to create new markets and achieve rapid growth, so have a disproportionate impact on employment and the national economy.
The point was reinforced by Tony Robinson OBE, a successful micro-business owner with more than 25 years’ experience and co-owner of Enterprise Rockers, which supports micro enterprises. In an article in the Daily Telegraph business pages, he says that despite the UK’s 4.5million micro businesses providing 32% of private sector employment and 20% of its turnover: “…95% of all government employment support and training funding goes to the largest 5% of UK businesses.”
Sir Hossein Yassaie, CEO of Imagination Technologies, has also weighed in, comparing planned support for innovation in S. Korea over the long term to what happens in the UK, where much of industry has been sold to overseas owners: “…The Government changes and everything is short term…. I think we really need to stop all that.”
In his view, also quoted in the Telegraph, instead questions need to be asked now about what we need to do today to be in markets in ten years’ time and imagination now is the key to future success.
Politicians need to put in place support that is genuinely aimed at SMEs that is more than rhetoric and not prone to change by a new Government, or they need to provide real short-term incentives to investors in innovation that will have the same effect over the longer term.
Examples of such incentives might be to provide soft loans, or offer matched funding alongside new share capital. We don’t want politicians trying to be clever as they have been with the flawed Enterprise Finance Guarantee Scheme which was never going to stimulate business.
It is a great pity that ‘highly regarded’ economists like the BBC’s Stephanie Flanders, who I understand also advises the Government, are unaware of the Small Firms Loan Guarantee Scheme that for approximately 15 years drove much of growth by SMEs in the 1980s and 90s. I asked her recently, and she had never heard of it.
This makes me think that economists like to operate at a theoretical and strategic level rather than try to understand what really makes SMEs tick so they can develop tactical stimuli that promote SME growth. Quantitative Easing is another example of theory not working for SMEs.