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Business Development & Marketing Cash Flow & Forecasting Finance General

Is outsourcing a blessing or a curse for SMEs?

outsourcing can reduce office chaosAccording to the GMB union the Government’s use of outsourcing has increased since the collapse into insolvency of the firm Carillion at the start of 2018, pushing the value of contracts up by 53%.
Whether the increasing use of outsourcing is a good or a bad thing depends on many factors.
For those sub-contractors and suppliers to Carillion who either lost contracts, money or work, it clearly was not a good thing as they await the outcome of investigations by Insolvency Practitioners to see whether there will ever be any recompense.
Pertinently for those owed money when a company enters an insolvency process, its employees are paid in priority or by the government if there aren’t sufficient funds, whereas its sub-contractors are treated as unsecured creditors and rarely paid anything like the amount they are owed.
But many SMEs depend for at least some, if not all, of their revenue on providing various outsourced services to their clients, from IT support and website building, to supplying parts or labour as part of a supply chain in construction, engineering and elsewhere.
Many self-employed people also provide services, from book keeping to marketing services.
The problems come when the buyer of the services is less than prompt about paying, often much later than in the terms and conditions, or perhaps they put pressure on suppliers to do work either for free or at extremely low cost, offering the “carrot” of more work or exposure that will be good for their business and result in further work.
Many self-employed people report, however, that the “carrot” fails to materialise and that in fact it puts a downward pressure on people and businesses offering services in their sector.
There is no doubt, though, that for those SMEs with the right skills and offering, and especially where there is a skill shortage, outsourcing can benefit both parties.

How to maximise the outsourcing benefits and minimise the risks

While using outsourced skills can improve a business’ output and reputation while minimising costs or at least avoiding employee liabilities, there are some pitfalls to be wary of.
The main ones involve not having the skills and owning intellectual property in-house which can expose you to supply and demand costs when business is growing. This is common in the construction and IT industries.
There is also the potential for the leak of sensitive information by people who are likely to have less loyalty to the business than those who are directly employed.
Another common problem is a lack of clarity about roles and contractual obligations.
Consistent quality of the work being provided and also adherence to deadlines may also be a problem.
At the initial stages of choosing a business to which to outsource a function or task, therefore, there needs to be very clear and detailed discussion of all the above issues with clear contractual obligations underpinned by deadlines with processes laid down for quality control and confidentiality together with penalty clauses should the provider fail to meet them.
By the same token, there should be a clear agreement on payment amounts and dates.
All of these should be included in a written agreement and signed by both parties as a contract which most likely will only ever be referred to when disagreements arise.
Both parties, those offering outsourced services and those buying them, can benefit from the transaction, but only if there is transparency with safeguards in place as well as honesty and integrity.

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Business Development & Marketing Cash Flow & Forecasting Finance General

The costs of investing in staff

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

Recruitment

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

Are there alternatives?

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

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

Planning for the year ahead

SMEs often use new year as an opportunity to plan for the year ahead and might benefit from knowing about Rudyard Kipling’s six wise friends: Who, What, Where, Why, When and How.
But while it may be straightforward to answer What (the goals and targets), When (by what deadlines) and Where (what sector and what clients might be most productive) the Who, Why and How are more difficult.
Who: the allocation of tasks is critical for success, including leaving you time to spend on the non-daily activities. Do you have the right people in your organisation, do they have the skills, such as devising and carrying out the marketing strategy that will be needed to meet your goals?
How: are there alternative ways such as outsourcing activities?
Why: this essentially invites you to consider your business model that encompasses all the elements of your business. Is it viable? Do you have sufficient funds or the cash flow to support your plans? Does it generate sufficient profits to justify your effort?
Finally, are you as the owner spending enough time on strategy, finance, marketing planning and leadership as all too often these are neglected when you are busy with the daily operation?
When planning for the future, it is worth considering whether an outside expert might be able to help you, you might be surprised how valuable this can be and it doesn’t need to be expensive in terms of cash and time.
I wish you a very happy new year.

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Finance General Rescue, Restructuring & Recovery Turnaround

The forgotten squeeze on incomes

We hear a lot from the unions about a squeeze on incomes for the blue collar workers they represent but there is another, large group of people who have suffered a much bigger drop in income.
Many middle management positions have gone altogether since the 2008 Great Recession began and older people, especially, who were made redundant from these positions have found it difficult to find other jobs.
According to research by the Resolution Foundation the loss of these middle management posts has contributed to a fall in real wages.
Many of these former managers have turned to self employment, setting up as consultants or outsourcing their skills to companies as needed and this has led to an estimated 20% reduction in their income although I believe the reduction is much greater.
The consequences of this are still to come.  While initially many have been cushioned by redundancy pay, reclaims from their bank due to mis-sold income protection and other insurance products, and low interest rates sooner or later the money will run out.
Having lost out on their occupational pensions, how many of these newly self employed are able to put money aside for their pensions?   How many will be able to repay their mortgages, let alone service them when interest rates rise?
Eventually we will face a serious Welfare payments crisis as more people reach retirement age without adequate provisions, not to mention that there will need to be a substantial correction to house prices, which are over-valued by up to 30% in our view.

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

How can you as a small business fund the growth of your team?

Zero hours contracts were heralded as a tool that would help businesses to keep their wage bills under control, by only paying employees for the time they spent actually working.
No wonder they were enthusiastically taken up by many large employers and could have been ideal for small growing businesses with tight margins. Regretfully most small businesses do not employ advisers on how to structure such contracts so they are not that common among small businesses who more often use sub-contract or piece-work contracts.
Zero hours contracts have also proven to be a problem because some employers abuse them by using clauses that prevent employees from taking other work even when there was none available with the contractor, leaving the worker with an uncertain income or in some instances no income and certainly no safety net. No wonder unemployment statistics have declined.
Legislation is on the way to change this but it raises the question as to how small businesses can attract and keep the best staff and how they can find the money to pay them a reasonable wage while at the same time developing capacity for a growing business.
It may be that revamped zero hours contracts will be useful to smaller businesses but legislating against the abuses will be difficult. For the moment the preferred option is likely to continue, that of outsourcing work to trusted sub-contractors.
Sub-contractors are often small businesses or sole traders themselves who take pride in their work and have a vested interest in building long-term relationships with clients. Essentially they become part of your team without the cost or obligations of employment.
Collaboration and partnering arrangements offer scope for growing both businesses.
Let us know how you are funding the growth of your team without breaking the bank.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Quality v quantity in social media marketing for SMEs

 

Part of the job of transforming a company in difficulty is finding a market. While the immediate crisis is often a lack of cash, the more fundamental ones relate to funding, sales and margins that are necessary to drive growth and we regularly see a failure to effectively market the goods or services.

A case in point is the use of social media, where it is easy for a small company to find itself running ever faster to stand still and to no effect whatsoever by trying to keep up with all the latest advice on frequency of posting on every available outlet .

How often, for example, do you ‘follow’ someone on Twitter or read their blogs because their insights impress you, only to eventually ‘unfollow’ them because the quality of their posts has deteriorated as the frequency has risen?

For the time-poor small business owner attempting to produce a high volume of good quality material for the ever growing list of platforms including LinkedIn, blogs, Facebook, Twitter, Pinterest, Google+, YouTube and more, it is an exercise in fantasy if they don’t have the time, knowledge and writing skills to do it well.

The DIY approach can damage your company’s brand, especially if it isn’t thought through or properly implemented.  

Far better to have a clear understanding of the company’s target customers, which media they use and what sort of information they value. This can then be used to develop a marketing strategy based on clear goals, whether to generate awareness or generate inquiries and a marketing plan for implementing the strategy. Your strategy might include marketing via social media as a very personal means of communication.

While business owners need to be involved in social media, especially in approving the strategy and monitoring its implementation, there are a number of ways to achieve this without doing it all your self or abandoning it to others. There are plenty of social media marketing firms but SMEs might consider outsourcing specific tasks to one or several specialists. This might be someone carrying out research for relevant topics as a source of content, drafting blogs and posts, editing them in consultation with the you, then posting them online to media that you specify. 

Over time the right specialist can help you achieve your social media marketing goals with the minimum of your time and cost.

In our view quality trumps quantity every time and it is better and more cost effective to produce fewer well-researched and presented pieces than to swamp the e-waves every day because that’s what some “guru” has advised.  Developing your brand may take longer but quality content will not damage your brand unlike trivia that may lead others to ‘unfollow’ you.

Please share your own experience of social media and also any techniques that might benefit others.

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Business Development & Marketing Cash Flow & Forecasting General Turnaround

Self Employed? You need to think like a Business

 

The government has been playing up a rise in disposable income, culled from figures compiled by the Office of National Statistics (ONS), but there is one fact that has been conveniently ignored.

This is that the ONS pay figures do not include earnings by the self-employed.

According to the research organisation the Resolution Foundation, the numbers of self-employed have increased by 26 per cent between 2002 and 2013 while their median reported income had dropped by 28% (approximately £4,000) between 2001 and 2010.

The TUC estimates that  540,000 of the approximately 1 million jobs created since 2008 have been through self-employment.

These are the people who supply the “outsourced” services – from plumbing to IT to Marketing to Consulting – that SMEs rely on.  They are also themselves SMEs as far as HMRC is concerned, where they are classified as sole traders.

No matter what their skills, arguably these are micro businesses with potential to grow, and as the economic recovery continues, they will hopefully be able to benefit.

But like any business, even a one-person micro business needs to set goals, have a business plan, understand finance, and have a marketing strategy for advertising and promoting themselves to generate business leads. 

Furthermore they need a passion and determination to succeed.  Being self-employed can be a lonely existence but need not be with the support of mentors, local networking and business organisations, industry groups or business advisors, any and all of whom can make a huge difference.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

You just can’t get the staff these days!

 

A problem that many SMEs struggle with and have raised again in recent weeks is finding suitably qualified people who will fit in.

There are several issues that particularly affect the small employer.

As well as paying another salary, NI and pension contributions, there is the management and admin time spent on payroll which has significantly increased due to tax and employment legislation such as the recently introduced Real Time Information (RTI) for PAYE.

While there may still be many unemployed people available since the 2008 financial crisis, finding someone with the right set of skills can be a costly and difficult business and already would-be employers have been identifying a shortage of people with IT, sales and financial skills.

Also, according to new research, The Flux Report, produced by the talent management group Right Management, the most important qualities employers will want from future employees will be resilience, flexibility and the ability to cope with change.  This is partly because of the economic volatility that has been apparent since 2008, and partly because the pace of change in technology, marketing and other areas has accelerated dramatically.

So what other options are available to SMEs?  Plainly costs need to be kept under control and many do not have the resources to train someone.  One solution to consider is outsourcing basic functions such as bookkeeping, payroll, credit control, secretarial work or answering the phone. Other functions such as sales & marketing, IT, delivery, premises management, and even manufacturing or servicing clients are often best done by external experts brought in as and when necessary. This can leave an SME to really focus on what it does best.

I know of a number of professional service and management consulting firms that focus on marketing to bring in the work and then outsource it to others to actually carry out. I know others that outsource their sales and marketing so they can focus on doing the work.

Those who want to take on staff might consider offering work experience to interns, seeking help with the cost of apprenticeships or with new employment costs from the new Employment Allowance scheme that can contribute up to £2,000 towards an SME’s National Insurance bill.

Most importantly growth starts with having a clear business model, a clear plan and identifying what skills gaps will be needed before starting to search for the right person.