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

Something for everyone in the Spring budget – but will it be delivered?

Spring budgetWho could envy a Chancellor having to deliver a Spring budget just one month into the job and in the midst of a global pandemic?
The Spring budget came after the early morning announcement of by the BoE (Bank of England) of an interest rate cut from 0.75% to 0.25%. Was this an outgoing Governor stealing an incoming Chancellor’s thunder?
With short term measures to help businesses deal with the Covid-19 consequences and others dealing with the environment, infrastructure, business taxes and addressing regional inequality the Spring budget covered them all.
The headline was a commitment to invest in infrastructure in support of the government’s commitment to ‘level up’ the economy by focusing investment on the Midlands and North: “over the next five years, we will invest more than £600bn pounds in our future prosperity”.
Many worries of SMEs were addressed by the £30bn package of short term measures to deal with the consequences of the Covid-19 epidemic.
They included abolishing business rates altogether for a year for small retailers with a rateable value below £51,000 extended to include museums, art galleries, and theatres, caravan parks and gyms, small hotels and B&Bs, sports clubs, night clubs, club houses and guest houses.
There was also a promise that business rates as a whole would be reviewed later in the year.
Any firm that is currently eligible for the small business rates relief will also be able to claim a £3,000 cash grant.
The Government will also cover up to 80% of a coronavirus loan scheme to cover the cost of salaries and bills and will offer loans of up to £1.2m to support small and medium sized businesses.
£2bn will be allocated to cover firms employing fewer than 250 people that lose out because staff are off sick with the cost of a business having to have someone off work for up to 14 days refunded.
The benefits rules will be relaxed to enable those who currently do not qualify for sick pay, such as the self-employed and gig economy workers, to claim benefits, which will also now be paid from day one of sickness.
Fuel duty was also frozen for a further year, but tax relief on red diesel will be removed over two years albeit with an exemption for farmers, rail and fishing.
In the longer term and over the five years of the parliament, the much-anticipated £170bn spending on improving the transport infrastructure and addressing the regional imbalance was also confirmed.
This will benefit the construction industry and is no doubt part of another statement: “Today, I’m announcing the biggest ever investment in strategic roads and motorway – over £27bn of tarmac. That will pay for work on over 20 connections to ports and airports, over 100 junctions, 4,000 miles of road.”
Similarly, the Chancellor confirmed that more than 750 staff from the Treasury and other departments will move to a campus in the north of England, as well as significant investment on R & D and that at least £800m will be invested in a new blue skies research agency, modelled on ARPA in the US.
Among a host of environmental initiatives, a new tax on plastic packaging is to be introduced, as well as freezing the levy on electricity and raising it on gas from April 2022.
Given the uncertain prospects for the UK’s economy, how many of the longer-term promises will be realised is likely to depend on the Government’s ability to borrow at unprecedentedly low rates so that it remains to be seen how much of the longer-term spending will actually happen.
It also remains to be seen how difficult the processes by which SMEs can claim help for Covid-19 related losses will be and whether the promise to review business rates as a whole will materialise.
The PR spin is already in place such as RBS’s claim today that it will provide £5bn of support for SMEs when in practice the small print refers to this as an extension to existing loan and overdraft facilities.
Notwithstanding any cynicism the Chancellor’s rhetoric was optimistic claiming his budget was aimed at “Creating jobs. Cutting taxes. Keeping the cost of living low. Investing in our NHS. Investing in our public services. Investing in ideas. Backing business. Protecting our environment. Building roads. Building railways. Building colleges. Building houses. Building our Union.”

Cash Flow & Forecasting Debt Collection & Credit Management Finance Insolvency

Late Payments putting even more pressure on SMEs in 2020

late payments penalty?The amount owed to UK SMEs in late payments had allegedly risen to £50bn in early January according to research by digital banking platform Tide as reported by CityAM.
It has calculated that the average UK SME is chasing five outstanding invoices at once, wasting an hour and a half every day.
Data from Pay UK, which runs the Bacs Direct Credit and Direct Debit payment services, later in the month revealed that late payments had reached a four-year high last year at £23bn.
Tide’s new £50bn total was considerably higher than Pay UK’s total of £23bn owed to SMEs and I cannot reconcile the two figures.  The Tide research was conducted by Atomik Research among 1,002 SME decision makers from the UK and, it appears, judging by a footnote to the Tide report, that its £50bn figure may have been estimated on the basis of a total of 5.9 million SMEs, as calculated by The Department for Business .
However, the situation puts immense pressure on SMEs, with some having had to resort to overdrafts, cutting their own salaries and personal loans to pay bills because their own are being paid late. This is highlighted by Paul Horlock, chief executive of Pay.UK who has said that for the first time their research has revealed the human cost in stress and anxiety to SME owners.
Rashmi Dube of legal practice Legatus Law and former director of TMA UK wrote in the Yorkshire Post that a third of payments to the SME sector are late, leaving 37% with cashflow difficulties, 30% forced into an overdraft and 20% suffering a slowdown in profits, with considerable knock-on effects to employees as well as business owners.
In an attempt to ensure the Government promises to strengthen the regime tackling late payments, the Labour peer, Lord Mendelsohn, introduced a private members bill in the Lords, aims to bring in fines for persistent late payers, shorten the deadline by which clients must pay suppliers from 60 to 30 days and force all companies with more than 250 staff to comply with the Prompt Payment Code.
Although Private Members’ Bills from the Lords are not generally debated in the Commons the move serves as a reminder to the Government of promises it has made.
Prior to the December election a wider package of reforms had been promised, including improved resources and increased powers, a tougher Prompt Payment Code and Audit Committees’ oversight of payment practices.
One of these promises has at least been kept in part, with the appointment of Philip King as interim Small Business Commissioner following the sacking of Paul Uppal last November over an alleged conflict of interest and pending the appointment of a permanent replacement.
Mr King, who was previously chief executive of the Chartered Institute of Credit Management (CICM), which was responsible for running the Prompt Payment Code, is transferring the administration of the Code to his new office, fulfilling the commitment made by government in June last year to bring late payments measures under one umbrella. This is a useful measure as the  CICM was focused on training income and mainly funded by large companies. Following the move, we can expect to see the naming and shaming of those large companies who withhold payment to their suppliers, many of them SMEs.
Meanwhile In February, another 11 large businesses have been suspended from the Prompt Payment Code for failing to pay suppliers on time. They include BAE Systems (Operations) Limited, Leonardo MW Limited, and Smiths Detection.
However, for many SMEs the wait, in my view, for tougher and more effective powers with real bite beyond the current regime of naming and shaming has been far too long. How many have been forced to give up the unequal struggle in the meantime and fallen into insolvency?

Banks, Lenders & Investors Business Development & Marketing Finance HM Revenue & Customs, VAT & PAYE Turnaround

Will SMEs get more help from the Government?

help from the Government?Business pages are always full of articles claiming that SMEs need more help from the Government.
But equally, there have been a number of upbeat and positive reports that suggest the opposite is the case, so what is the truth?
According to the business lender Iwoca, lending to SMEs in deprived areas has dropped dramatically, by 8% between 2014 and 2018. Iwoca CEO Christoph Rieche has said: “It’s concerning that, in many parts of the country, major banks aren’t serving small and microbusinesses with the funding required to help them thrive. SMEs are vital for the health of the economy.”
The figures are borne out by UK Finance, which has revealed that small business loans and overdraft balances from big banks fell by almost 16% in the North West between the end of 2014 and September last year, from £9.8bn to £8.2bn, while loans and overdraft balances in London fell by only 2.3%. Wales saw a 14.2% drop, while Yorkshire and the Humber posted a 10.9% decline.
The CEO of the British Business Bank has also argued that the Government should invest “billions” more in SMEs if it wants to deliver on its promise of levelling up all parts of the UK.
Earlier this month reports in the Financial Times and the Times criticised the Prime Minister for ignoring business groups such as the CBI (Confederation of British Industry), BCC (British Chambers of Commerce) and the IoD (Institute of Directors) in a speech he gave on EU trade negotiations.
An aide (unnamed) later reportedly criticised these business bodies for failing to prepare their members for “a Canada-style free trade deal” and said they were unlikely to get Government attention unless they fulfilled their responsibility to their members.
Another issue high on the SME agenda is the Apprenticeship Levy, which is failing SMEs, according to the FSB (Federation of Small Businesses) leading to a 24% drop in apprenticeship starts since the new scheme was introduced in 2017.
However, there has been some positive news for SMEs, the Ministry of Housing, Communities and Local Government has confirmed that a £1bn of new loans is to be made available to small construction companies, under a loan guarantee scheme.
Let us hope it is not like the Enterprise Guarantee (EFG) scheme that was introduced in January 2009 to replace the Small Firms Loan Guarantee (SFLG) scheme that was introduced in 1981.
While both provided for a government guarantee to underwrite bank lending to SMEs, the SFLG scheme was a key contributor to the grown of the UK economy under Mrs Thatcher’s government through encouraging entrepreneurs. The SFLG repaid the banks as lenders to companies upon insolvency of the but was very different to the EFG that required personal guarantees from directors and only repaid the bank lenders after bankruptcy of directors as guarantors. It is no wonder that the EFG failed. We can only hope that the new breed of young advisers to Rishi Sunak, as the new chancellor read history but I am not holding my breath.
In the meantime, there are other initiatives, many aimed at the regions such as the Midlands where FSE Group has been appointed by the Midlands Engine Investment Fund to manager an estimated £40 million fund for its region’s businesses.
An example of stimulus for SMEs was that reported by Civil Service World who found that the proportion of government spending going to SMEs exceeded 25% for the first time in four years last year, as smaller firms won an extra £2bn in Whitehall contracts.
There are without doubt burning issues for SMEs that need to be addressed, such as tougher action on late payments, reform of business rates and reliable, efficient broadband in rural areas and market towns, on which there has been little Government comment so far. We might however have found a champion in Philip King, the recently appointed Interim Small Business Commissioner, who is promoting the Prompt Payment Code ( to focus a spotlight on the payment record of large firms.
We shouldn’t ignore the positive signs from Government following its election with a clear mandate and a sense of purpose to make things happen which in turn will rely on a strong economy.
The budget on March 11, may yet contain some real help for SMEs and at least will let us know whether the Government is aware of SMEs and their concerns.

Accounting & Bookkeeping Cash Flow & Forecasting Finance Insolvency

Update – sacked Small Business Commissioner speaks out

Small Business Commissioner sacked - for telling the truth?The now-ex Small Business Commissioner, Paul Uppal, has accused the Government of thwarting attempts to help SMEs tackle the late payment scourge.
Mr Uppal has reportedly blamed Whitehall for pushing him out of a role which, he says, is under-resourced and ignored by government.
He said that his office was met with “radio silence” from civil servants and ministers over his approach to the job and that his budget was too small to tackle the “huge task” of getting big companies to pay small businesses on time.
He also revealed a little more detail about the reason for his sacking, which was “a disagreement over an alleged conflict of interest related to an unpaid, interim advisory role in another government-backed small business scheme”.
The Times, is the only national broadsheet to cover the story, although it has been picked up by the online publication
It seems that The Times is becoming the champion of SMEs, carrying another article on the same day about a poll from the Chartered Institute of Procurement & Supply (CIPS) that found that almost one in six businesses said most payments are settled late. Malcolm Harrison, chief executive of CIPS, said there was a “rotten culture” of late payment. The organisation has been calling for big businesses that are slow to settle invoices to be barred from public sector work.
Another poll out this week from Xero, the online accountancy platform, revealed that a quarter of small business owners believe their company will go bust within 5 years, with 54% warning that late payments posed a risk to their firm.
The FSB (Federation of Small Businesses) has repeatedly said that late payment is the cause of an estimated 50,000 small businesses go under each year because of “pernicious” late payment. This figure might be questioned given that there were 17,454 formal company insolvencies in 2018 however I accept a liberal interpretation to allow for sole traders and companies ceasing to trade.

Does the Government care about or understand the pressures on SMEs?

According to research from the Department for Business, Energy & Industrial Strategy, at the start of 2018 a massive 99.9% of the 5.7 million businesses in the UK are small or medium-size businesses (SMEs). Of these only 0.6% of businesses in the UK are classed at medium-sized businesses.
This arguably makes SMEs an essential contributor to the economy and the provision of jobs.
Yet there has been no word on the appointment of a replacement for Mr Uppal, since I reported in my blog on November 19 the Government’s statement: “An open recruitment campaign to appoint a new Small Business Commissioner will get started immediately.”
Allegedly Fiona Dickie, the Deputy Pubs Code Adjudicator, was to provide oversight in the Small Business Commissioner role until early November, pending the appointment of an interim commissioner.
However, there has been a deafening silence from her, the General Election notwithstanding.
It has to be asked why an unpaid, voluntary advisory role for Mr Uppal was deemed to be a conflict of interest with his official position?
I have asked previously and I repeat my question: has the Government been successfully lobbied by some large corporates to roll back this initiative? Was he becoming too successful?

Accounting & Bookkeeping Cash Flow & Forecasting Finance Insolvency

Late payments situation getting worse for some SMEs

late payments penalty?According to the ICAEW (Independent Chartered Accountants of England and Wales) late payments to SMEs are a bigger problem than they were a year ago.
Of the nine SME industries analysed, it said, six had reported that the problem of late payments was worsening.
The FSB (Federation of Small Businesses) too, has said that while there have been some improvements thanks to the efforts of the Small Business Commissioner Paul Uppal, late payments remain a major problem and research by Lloyds Bank Commercial released at the end of last month found that last year almost two thirds (62%) of SMEs that were being paid late “failed to chase up for fear of harming customer relationships” also cited time constraints as a significant factor.
The cost to small businesses has been considerable, according to research published by Hitachi Capital earlier this month. It estimates late payments have cost SMEs £51.5bn in the last year.
Its survey of 1000 businesses found that 31% have experienced late payments costing their business at least £10,000 in the last 12 months.
It said that 27% reported that late payments have hit profits, while 12% said the issue had forced them to defer pay to staff. Around 40% have had to use their own money to fund cash flow in their business, with 80% using personal savings to keep their business operational.
Mr Uppal has meanwhile continued to investigate SME complaints and published reports since I last provided an update on the situation.
In mid-July he suspended 18 companies from the Prompt Payment Code, including BT Plc, British American Tobacco and Centrica.
He investigated several complaints and has published reports naming and shaming the companies involved.
They included Bupa Insurance Services Ltd who had failed to pay an invoice for £29,403.76 on 2 November 2018 based on 45-day end of month payment terms. Payment was eventually made 30 days late on January 15 2019 after the SME and Mr Uppal had chased on several occasions.
Also named and shamed in separate reports were Zurich Insurance PLC which eventually paid a claim 65 days later than its agreed payment terms.
Another company, Sambro International failed to pay a small graphic design company within its promised 30 days, for two invoices submitted in November and December 2018. Eventually following Mr Uppal’s investigation, one was paid 56 days late and the second 23 days outside their contracted terms.
Clearly, Mr Uppal and the Chartered Institute of Credit Management (CICM), which administers the system of removal of businesses from the Prompt Payment Code are doing their best, but in the current uncertain economic climate SMEs have enough to worry about without this constant and relentless mistreatment by larger customers and it is well past time the Small Business Commissioner was given stronger powers of enforcement.

Cash Flow & Forecasting Finance

Proposal to strengthen sanctions for late payments culprits

late payments penalty?Some 18 months since the appointment of Small Business Commissioner Paul Uppal to tackle the problem of late payments to SME suppliers by larger companies it seems that the situation has barely improved.
In fact, according to research published in June by Purbeck Insurance Services late payment problems have actually got worse for 27% of SMEs with some 30% reporting worsening cash flow problems.
In the first quarter of this year Mr Uppal’s department has overseen the removal or suspension of some 17 companies that had signed up to the Prompt Payment Code (PPC) but failed to meet its standards.
The five removed altogether included BHP Billiton, DHL and GKN Plc. Signatories to the PPC pledge, among other things, agree to pay 95% of all supplier invoices within 60 days.
In its most recent completed case in May 2019 the Small Business Commissioner (SBC) was approached by a SME over the failure by G4S to pay it an invoice for £31,880.49 despite having contracted to do so within 60 days.
Although G4S claimed this was an isolated incident and the invoice was paid immediately it was contacted by the SBC, further investigation found persistent late payment of previous invoices over an 18-month period.
Now the Government’s small business minister Kelly Tolhurst has announced proposals to consult on strengthening Mr Uppal’s powers.
The proposals include making directors accountable for overseeing their payment practices, which would have to be detailed in their annual reports.
They also propose strengthening the powers of the small business commissioner to tackle late payments through imposing fines and introducing binding payment plans.
The proposals have been welcomed by Mike Cherry, national chairman of the Federation of Small Businesses while the IoD (Institute of Directors) is reported in an article published by CityAM to have said  that they marked a significant step forward: “Forcing larger firms to report on their payment practices will ensure much greater scrutiny where standards fall short, and sunlight is often the best disinfectant,”
In another development, from September this year firms that do not pay 95% of subcontractors within 60 days risk being frozen out of public sector procurement. The new rules force companies to report their payment data every six months to a national database overseen by the business department. This will no doubt encourage whistle blowing by those who are not paid within the 60 day deadline.
It is clear that voluntary agreements by large companies as well as being named and shamed are not going to be sufficient to halt the scourge of late payment to SMEs but barring large companies from public sector contracts and moves to strengthen the SBC powers are to be welcomed as they may change the late payment culture that seems to be embedded.

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.

Business Development & Marketing General

Evidence mounting that SMEs are more attractive to millennials

There has been a growing body of evidence and research over the last couple of years that millennials prefer working for and shopping with SMEs.
Too often we hear about the difficulties and obstacles SMEs face, such as excessive red tape and disproportionate taxation, but it should be remembered that they account for more than 99% of all businesses in the UK, and recently, Secretary of State for International Trade Liam Fox called UK SMEs “the future of the UK economy”.
As such, it would be foolish for millennials starting out on their careers to ignore the potential opportunities SMEs could offer, and indeed, according to research carried out by Sodexo, it seems that 47% of this young cohort see them as the ideal business size to work for compared to 19% who put their faith in larger companies.
Among the benefits they saw in working for SMEs millennials in the survey they cited flexible working hours, the ability to work remotely, career progression and a friendlier company culture.
Research for the software firm WebOnBoarding suggests that new staff settle in more quickly at smaller businesses and newcomers found people friendlier than in larger companies.

Other benefits to millennials from working in SMEs

In a small business there is more opportunity for both hands-on experience as well as a wider variety of tasks.
As a SME grows, the opportunities for advancement are likely to be greater than they would be in a larger business with a more formal structure and the small business also needs to be agile to survive and flourish, which arguably allows from for more innovative thinking and contributions from all members of the workforce.
This gives younger employees the opportunity to develop their skill set much more quickly than they could in a larger organisation and also tends to give them more responsibility.
While the SME may not be able to afford to pay the large bonuses paid by some larger companies, they can be creative in the ways they reward employees, such as by offering a day off for a sporting activity, a luxury spa treatment or an early end to the working day on Fridays during the summer.

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency

How much longer before SMEs get a fair system for dispute resolution with the Banks?

fair dispute resolution with the banks?It looks likely that SMEs still have some time to wait before a cost effective and fair system for dispute resolution with the Banks becomes a reality.
It is now approaching ten years since SMEs’ scandalous treatment at the hands of RBS (Royal Bank of Scotland) and its insolvency arm GRG (Global Restructuring Group), and of HBOS Reading emerged prompting investigations into the way the major banks treat their SME customers.
In July, the FCA (Financial Conduct Authority) announced on completion of its RBS investigation that its “powers to discipline for misconduct do not apply and that an action in relation to senior management for lack of fitness and propriety would not have reasonable prospects of success”.
Andrew Bailey, FCA Chief Executive admitted that its inability to take action should not be seen as condoning RBS’ behaviour.
Earlier in the year UK Finance, the trade body for banking and finance, had appointed Simon Walker CBE – the former Director General of the Institute of Directors – to review the disputes and resolution process.
The result of this SME Complaints and Resolution Review was published late last month and concluded that setting up a new tribunal would be too costly for both Government, SMEs and banks and instead has supported the FCA’s planned extension of powers for the Financial Ombudsman Service to cover business banking customer complaints.
Not surprisingly this has been welcomed by some Banks and UK Finance has called the review a “valuable contribution” to the debate.
Nevertheless, the APPG (all-party parliamentary group) on fair business banking, led by Kevin Hollinrake, has repeated its call for the creation of a financial services tribunal and for a compensation scheme for business customers who were victims of the RBS and HBOS behaviour.
The APPG argues that Walker’s report clearly identifies that there is a limit to the proposals, which do not extend beyond a compensation limit of £600,000, cannot compel witnesses, cannot force disclosure of information nor deal with insolvency issues.
It has also been argued that The Financial Ombudsman Service, even with extended powers, is insufficient since the maximum compensation it can award is £350,000, regardless of the £millions in losses that some SMEs have sustained.
Equally, many SMEs have argued that pursuing complaints using the civil courts as an alternative is hugely costly since large defendants generally adopt a strategy of attrition with the aim of causing their SME claimants to run out of money before the case is heard.
It looks as though there is likely to still be a considerable wait before SMEs get a fair and equitable system for resolving disputes with the disproportionately more powerful banks.

Debt Collection & Credit Management Finance HM Revenue & Customs, VAT & PAYE Insolvency Turnaround

Why is this Tory Government intent on destroying SMEs?

Wrecking ball destroying SMEsAt the October 2018 Tory party conference, the Prime Minister reiterated her support for businesses, calling them “the wealth creators, the risk takers, the innovators and entrepreneurs …. who generate jobs and prosperity for our country” yet the Government’s actions seem set on destroying SMEs and entrepreneurial initiative.
Whenever a SME encounters financial difficulty that make it difficult to keep up to date with its VAT and PAYE payments, it is invariably HMRC (Her Majesty’s Revenue and Customs) that is criticised for its heavy-handed and unsympathetic behaviour in recovering monies owed.
There is some truth to this given recent revelations of a surge in HMRC action to seize assets, which had risen by 45% in the tax year to March 2018, following a 23% increase in asset seizures the previous tax year. It is debatable whether asset seizure is an effective arrears-gathering measure, given that the seized assets are often then sold at auction for little value and the seizure effectively prevents a business from continuing to trade in a way that can pay off arrears.
It is worth remembering that HMRC does have discretionary powers, such as to agree Time to Pay arrangements to help businesses in arrears to settle their outstanding taxes over time although it is not obliged to offer this facility and no doubt is reluctant to do so if previous arrangements have failed.
Crucially, it must be remembered that HMRC is a tool of Government such that if HMRC is increasing its pressure on businesses, whether via asset seizure or by resorting to litigation, as I have reported in several previous blogs, then surely it is because the pressure is coming from the Government to improve its collections and recoveries.
However, the recent changes to HMRC’s creditor status and to directors’ liabilities in the October 30 Budget are telling.
Firstly, the Chancellor announced a restoration of HMRC’s status as a preferential creditor albeit behind employees unlike its pre Enterprise Act 2002 status of ranking pari pasu (equally) with employees. This means that the recovery of unpaid PAYE, CIS and VAT as any other taxes collected by businesses on behalf of HMRC will rank ahead of suppliers and unsecured creditors in insolvency.
Secondly, the Chancellor announced a measure in the Budget that has so far provoked little comment; he proposes to make directors and advisers jointly and separately liable for the preferential tax liabilities in insolvency. The details no doubt will clarify the nature of any actual liability such as if the insolvency is deliberate or not but this will effectively allow the appointed insolvency practitioners to hold directors to ransom by threatening expensive litigation against the directors personally.
This second measure is likely to be a significant deterrent to anyone becoming a director and also to entrepreneurs and indeed anyone wanting to set up a new company.
Since there also seems to be a disparity between HMRC enforcement action towards SMEs when compared with the seeming light touch on larger enterprises, it is reasonable to conclude that this Tory Government has abandoned entrepreneurs and is intent on destroying SMEs.
Who will become a director once they know what potential liabilities they are taking on?
As ever, government actions speak louder than words.

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

Should SMEs consider appointing non-executive directors (NEDs)?

older woman non-executive director It is hard for SME directors to step back and look at the bigger picture when they are so immersed in day-to-day operations. Could they benefit from having experienced and objective non-executive directors (NEDs)?
Research carried out by law firm TLT, University of the West of England and the Association of Chartered Certified Accountants this summer suggested that SMEs did not understand how to recruit or engage with NEDs. The conclusion was that smaller firms with NEDs were not benefiting as much as they could.

What does a non-executive director do?

The NED is an independent director, who sits on a business’ board of directors but does not form part of the executive management team.
NEDs’ primary responsibility is to attend board meetings and crucially to turn up prepared having read the board pack and researched the key matters that require decisions. They should also monitor reports and carry out their own review so they can ask pertinent questions with view to assisting develop systems and strategy and resolving problems. This can involve offering specific and objective advice but does not require them to know the answers, more important to help find ways of finding the answers.
They should have a longer-term perspective and can act as mentors.
The more engaged ones will network, looking for new opportunities and useful contacts and building relationships inside and outside the business.
Obviously, it can be useful for a NED to have experience specific to your business but this is not necessary and can be an impediment since they may be less likely to embrace change.
In a recent description of the role of NED, the IoD (Institute of Directors) said their role was “to provide a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors.”
Referring to the 1992 Cadbury Report it also said, “they should bring an independent judgement to bear on issues of strategy, performance and resources including key appointments and standards of conduct”.
The recent update on corporate governance code introduced by the FRC (Financial Reporting Council) in July specifically referred to the potential role for NEDs as an option for building a wider engagement with stakeholders, particularly the workforce. Having a designated NED for this was one of three options it suggested. The code will become effective from 1 January 2019.
Anyone considering or invited to join a business board as a NED should understand that there is no legal distinction between executive and non-executive directors.  latter have the same legal duties, responsibilities and potential liabilities as their executive counterparts.
It makes sense, therefore, for potential NEDs to carry out proper due diligence and to be properly briefed before being appointed. The ICA has an excellent set of guidelines and advice for NEDs here.
Independent oversight of the strategy and direction, executive remuneration and performance, systems and risk management, and audit of a business is something that surely would benefit their businesses.
While these apply to all businesses, SMEs in particular can benefit from having directors with board and governance experience to introduce best practice and act as a mentor to those SME directors who have had limited exposure to well-run boards.

Business Development & Marketing Cash Flow & Forecasting Finance General

Travel and Tourism: a key UK economic sector, but potentially volatile

travel and tourism no more overseas holidays?As with any consumer-dependent sector of the economy, travel and tourism is susceptible to changing trends in consumer behaviour, to their disposable income and inflation, and of course to the weather.
The travel and tourism industry involves many businesses, from the small, independent SMEs running camping and caravan sites, holiday cottages, B & Bs and independent hotels in traditional seaside resorts, to adventure sites, amusement parks and beachside cafes, as well as the small independent travel agencies offering bespoke holidays and mainstream travel agencies offering packages.

Attitudes to holidays and disposable income

There has been a trend among UK consumers to opt for the “staycation”, holidaying at home rather than going abroad for a couple of weeks.
There have also been signs that the larger travel companies offering packages overseas have been struggling this year, with both Thomas Cook and Tui reporting declining bookings.
This has been more noticeable since the referendum vote in 2016 to leave the EU and can, at least partly, be attributed to the resulting substantial drop in the value of £Sterling. It has made it more expensive to travel outside the UK and more expensive to live with higher prices in the shops such as for food and goods as well as other basic needs like the recently announced above inflation 3.2% rise in rail costs.
Coupled with this has been a sluggish rise in wage growth that has barely kept up with inflation, despite record “full” employment, where many of the jobs created have been barely above living wage levels or involving zero hours or part time contracts.
All of this has an impact on disposable income and discretionary spending and as a consequence how much is available for holidays.

Difficulties in travelling abroad

Airlines and major airports have had significant bad publicity in recent months, making the prospect of travelling abroad an ordeal and far less attractive.
Ryanair, particularly flying into and out of Stansted airport, has had major problems with many flights being cancelled. These have been attributed variously to an electrical storm over Croydon on one occasion, to not enough air traffic controllers in Europe and strikes by its pilots in several European countries. The result has been flight cancellations at very short notice with thousands of stranded passengers suffering from delayed travel to or from holiday destinations and lengthy queues often of several hours to reclaim baggage.
This has been compounded by inadequate customer support and by Ryanair’s refusal to compensate many customers on the grounds of its exemption under Ts and Cs when circumstances are beyond its control.
Air traffic control strikes in France have also disrupted travel.
Inadequate staffing at the major airports, such as Heathrow, not to mention several IT failures, this year have also caused significant delays for travellers. This has led to one airline, BA, calling for improvements to the average wait of two hours for arrivees at major London airport hubs to get through border control.

Holiday attractions in the UK – and the weather

While the post-Brexit referendum exchange rate has made the UK a more attractive holiday destination for overseas visitors, it must be said that this year’s summer of unbroken sunshine has been a blessing for the UK travel and tourism sector.
One county in East Anglia, Suffolk, reported earlier this month that the sector had taken a record of £2 billion for the first time ever.
Suffolk, like many parts of the UK from Scotland down to Cornwall, has many features making it attractive for both overseas tourists and “staycationers”.  There are many places where visitors can find carefully-preserved historic buildings in attractive market towns and cities, so-called heritage sites, nature reserves and attractive countryside as well as our beautiful cities like London, Edinburgh, Bath or York. In UK there is something for holidaymakers of all tastes, although the weather can be a deciding factor.
It is admittedly more difficult to promote the UK as a sunny and warm holiday destination in the face of our usual summer drizzle, grey skies and variable temperatures.
Certainly, our recent sunny weather has been blamed by Thomas Cook and Tui for fewer travellers and lower profits.  Thomas Cook usually makes all its annual profits during the summer and this year’s slowdown in bookings has eaten to its overall profit rise.
Profits at Tui fell 18% to €193m (£174m) in the three months to the end of June, also attributed to the UK heatwave, but also to flight delays and cancellations during air traffic control strikes in France, along with the timing of Easter and the weaker pound in the UK.
A survey by Seasonal Businesses in Travel, which represents more than 200 outbound British travel companies, has predicted that post-Brexit completion European holiday prices are set to rise by 31 per cent, putting more than 250,000 UK jobs at risk.
Perhaps for those offering holidays in Turkey there is some respite following the recent 20% collapse in the Turkish Lira. Foreign exchange bureaux have reported running out of currency, indicating a mass exodus to Turkey.
Travel and tourism is always likely to be a volatile sector, but at the moment the signs are that the potential for more staycations will continue, and, if the airlines and airports can sort out their issues, possibly more holiday makers will come to the UK from abroad.

Finance HM Revenue & Customs, VAT & PAYE

HMRC consulting on closing another tax avoidance loophole

tax avoidanceThe drive to maximise tax revenue continues with another consultation document of very limited duration.
Launched in April with consultations due to end this coming Friday HM Revenue and Customs (HMRC) has this time turned its attention to “arrangements entered into by UK individuals and traders that aim to place profits proper to the UK outside the scope of UK taxation” also known as Profit fragmentation.
The consultation, announced in the Autumn 2017 budget, is the first step to drafting new legislation, aimed at dealing with individuals and smaller enterprises who are deemed to be deliberately allocating excess profits to an overseas entity from which they, or someone else connected to them, can benefit.
Examples are described in the consultation document as service providers, such as an entertainer, asset manager or specialist producer of high value items. One such example cited is a management consultant resident in the UK and providing their services in the UK and overseas, where a proportion of the fees are paid in the UK but the rest is paid directly by customers to an offshore company.
The argument made by users of such arrangements is that the offshore company has no assets apart from access to the skills of the consultant who is exercising their skill from the UK.
HMRC argues that all the income comes from a single underlying activity operating solely from the UK and that therefore it should all be taxed in the UK as the consultant’s profits.
It emphasises that any proposed legislation should be properly targeted and not “weigh inappropriately” on those UK businesses that do pay all their tax in the UK.
It admits that there is existing legislation to tackle at least some of this issue and that the legislation, such as the transfer pricing and Diverted Profits Tax, contains specific exclusions for SMEs. It also admits that it can be difficult to identify persons using such arrangements.
It proposes that the legislation should include a legal requirement for people using such arrangements to notify HMRC. It calculates that it will affect “8-10,000 wealthy individuals who control a small number of businesses” and increase tax receipts by up to £50 million.
Assuming that such legislation is adopted it will be announced in the budget this autumn and is expected to commence from April 2019.
While maximising the tax revenue is perhaps a laudable aim I have to question whether the acknowledged difficulties of obtaining the detailed information required from offshore entities, as HMRC mentions in the consultation, for a relatively small number of targets and potential revenue is the best use of HMRC’s limited resources.
As with the HMRC consultation to prevent directors using insolvency to “game the tax collection system” that I covered in my blog of May 15 the question is whether these two consultations are straw clutching exercises resulting from pressure on HMRC by the Government.

Finance General Insolvency

SMEs need help to navigate the business rates system

the potential effects of business rates?Retailers are the most high-profile sector of SMEs that are struggling with business rates and the appeals system following the April 2017 revaluation that came into force last month.
But it is not only the small retailers that are facing challenges.
SMEs’ problems have been repeatedly raised by the Federation of Small Businesses (FSB) and the British Retail Consortium (BRC) both of which have highlighted two issues.
These are the disproportionate business rates rises on smaller businesses compared with larger ones, and a new, revamped appeals system that the FSB in particular has criticised as seemingly “designed to be hostile” to companies.
National FSB chairman Mike Cherry has described the appeals system as bureaucratic and beset by glitches, while offering no in-person support, no phoneline or live chat options and involving a time consuming and opaque process for uploading supporting material when making an appeal.
Why am I not surprised that yet another Government-inspired online system is proving not fit for purpose?  Excessive reliance on digital systems is something to which I shall return in a forthcoming blog.
According to the Government’s guidance on business rates relief SMEs are eligible for relief if their business property’s rateable value is less than £15,000. Those whose property’s rateable value is less than £12,000 are exempt from business rates. There are also transitional reliefs if SMEs’ revaluations took them out of exemption with a cap on bills so that their monthly payments would not increase by more than £50.
However, it seems that 71% of companies are “very dissatisfied” with the Valuation Office appeals process and that appeals had plummeted by as much as 99% between April and December 2017, according to a report in the Daily Telegraph.
On top of this a £500 fine was introduced for any business that was found to have appealed wrongly.
In April the then Communities Minister, Sajid Javid, announced an independent review of the way the business rates system operates. The review is to be led by former Director General for Public Services at Her Majesty’s Treasury, Andrew Hudson. Who had also previously held the position of chief executive of the Valuation Office Agency, as well as having worked in local government. Business rates are collected on the Government’s behalf by local authorities.
Of course, Javid has since relocated to the Home Office, and, so far, there has been no further information on the review.
It is often said that SMEs are the backbone of the UK economy, and according to FSB and BRC figures they inhabit approximately 1 million of the 1.7 million business premises in the UK on which the tax is payable.
If the economy is to survive the still unknown outcomes of Brexit in anything like reasonable shape it will be relying on these SMEs to preserve jobs, to grow and expand.
This means they need a system of fair taxation, a robust and user-friendly rates appeal system and the minimum of red tape and bureaucracy to have a fighting chance of doing more than simply surviving.

Business Development & Marketing Cash Flow & Forecasting General Turnaround

SME tendering opportunities amid the doom and gloom

There are tendering opportunities despit the storm cloudsIt can seem, amid the uncertainty over the future of UK business as the shape of Brexit remains shrouded in mystery, that there is nothing but relentlessly dire news for SMEs.
Here’s a selection of snippets from the last week or so:
A major bank (Santander) announces that its loans to corporate clients during the first quarter of 2018 were down by 4% amid a slowing demand for business finance.
There is a dramatic fall of 48% in the numbers of new French, Dutch and Belgian businesses registering in the UK (Companies House).
UK GDP growth comes in at just 0.1% quarter-on-quarter in Q1, with factory order growth in April 2018 slowing to its weakest level in two years and yet more “big name” retail casualties and announcements of shop closures, this time M & S.
On top of this it has been estimated that there has been just a minuscule 10% opt-in rate to all those marketing emails attempting to comply with tomorrow’s GDPR deadline and issued by SMEs, sometimes when they did not actually need to, and potentially decimating their marketing plans.
It should be no surprise, therefore, that there is some anecdotal evidence that some SMEs are finding business life just too difficult and deciding to throw in the towel. The recent growth in self-employment and those setting up in business for themselves may be coming to an end.
Despite the changing marketplace there are always opportunities for SMEs, especially nimble ones.

SMEs should explore tendering opportunities

There is undoubtedly a great deal of work outstanding on unfinished projects around the UK as a result of the collapse of Carillion. Sooner or later there will have to be invitations to businesses to tender for them, and hopefully lessons will have been learned about breaking these down into smaller contracts that could encourage SMEs to bid for them.
There are public-sector tendering opportunities at local, regional and national level and while the process can be lengthy, detailed and sometimes costly, wise SMEs can start exploring the options and preparing the material they might need to submit. It gets easier the more you do.
Firstly, if, as I often advise, you regularly review monthly management accounts, have a solid business plan and control over cash flow and overheads, you should be able to identify the services your business can realistically offer, and this should help you to find the right projects for which to consider tendering.
Secondly, you can find regular updates on contracts worth over £10,000 coming up on the Government’s Contracts Finder website and search for more details.  There are other opportunities and more guidance on tendering on this Government website – follow the links as appropriate. For more local projects you can also contact your local authority or LEP (Local Enterprise Partnership).
The advantage of tendering for public sector partnerships is in the quality of the contract and the likelihood that payment terms and dates are more favourable.
Once you identify tendering opportunities that fit the capabilities of your business you will need to factor in the time it takes to gather the information needed and go through the process. It helps to have someone within the company who has responsibility for managing the bid, from doing the research to writing and checking drafts.
During the bidding process your application will first be “scored” by the government department or agency, to create a shortlist of those who will be invited for interview by a panel of experts.
While the tendency has been to look for the lowest price bids, with much less attention paid to other criteria such as SME preference, quality and service based on the applicants’ track record for delivery and their financial stability, it is to be hoped that lessons will have been learned from the Carillion failure and a more comprehensive and realistic appraisal of SME applicants will result.
Hopefully this will help to level the playing field for SME applicants.

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

Can SMEs have confidence in the Government’s new Small Business Commissioner?

mall business commissioner a superhero?In December 2017 the UK Government appointed a Small Business Commissioner with the remit of supporting SMEs struggling with late and unfair payment practices when dealing with larger businesses.
The Commissioner appointed to tackle this is Paul Uppal, who ran his own small business for 20 years, and it will be his job to support SMEs in taking action on late payments and on making a complaint.  There is also a website where SMEs can get help.
Three months after his appointment, however, research by Close Brothers Invoice Finance found that very few SMEs have any confidence that the Commissioner will be able to make a difference. Their report says: “84% of SMEs do not anticipate that the introduction of the small business commissioner will have any positive impact on their business.”
According to Mike Cherry, National Chairman of the Federation of Small Businesses (FSB): “The UK is gripped by a poor payments crisis, over 30% of payments to small businesses are late and the average value of each payment is £6,142. This not only impacts on the small business and the owner, it is damaging the wider economy.”
It has been estimated by the Centre for Economic and Business Research that a group of 22,000 so-called high growth small businesses make a disproportionately large contribution to the economy, providing an estimated £65,000 per worker compared to the national average of £55,000.
However, while very high on the list, ‘late payment’ was not SMEs’ only concern when asked about their issues and prospects for 2018.
According to a survey by, high on the SME list of challenges were firstly recruiting, retaining and developing quality people, followed by managing growth and change (specifically access to and cost of funding) and the Government’s competence, regulation and understanding of business.
In fourth place was managing uncertainty (the wider geo-political and economic context). Other research has found that more than half of SMEs felt that their Brexit concerns were being ignored and that ministers were not listening to their views.
Given that SMEs are seen as the key to improving the UK economy’s growth and productivity plainly they will need as much support as possible.
As the deadline for leaving the EU is less than a year away it is high time that there was serious attention paid to SME voices and that significant and effective steps taken to address them.
The Small Business Commissioner appointment is a start, but he might also take up other causes for small businesses, not least holding banks to account for their dealings with SMEs. There is the prospect of a complaints procedure that avoids the need to deal with issues through the courts. There is also the creeping nature of fees and charges which go unreported in the press, the latest being Lloyds revised fees that for some have in interest rates being increased up to 52% and fees being increased by 240%.
it remains to be seen how effective the new Commissioner will be.

Accounting & Bookkeeping Finance HM Revenue & Customs, VAT & PAYE

The latest Making Tax Digital updates for SMEs

Making Tax Digital and old fashioned tax collectionIn the distant past tax was simple, it was collected by collectors and stored somewhere safe like in the Treasury at the Great Mosque of Damascus. Incidentally the Mosque was formerly a Christian basilica and is alleged to contains the head of John the Baptist, it is definitely worth a visit for those brave enough to visit Syria.
Over the years chancellors have found ever more creative ways to claim tax revenue and we have become collectors filling out increasingly complicated forms and remitting tax due to the treasury. It is however possible that digital filing may reverse the trend by making it simpler for us as tax collectors to complete and file returns, but woe betide those of us who make a mistake.
Research carried out by Ipsos Mori for the Government and released in December has found that 70% of small businesses and landlords are unaware of what will be required of them under the new Making Tax Digital (MTD) initiative.
Do you know what the updated MTD rules are and to whom they apply?
The Government published updates last month outlining some changes to the original MTD plans.
The new rules will apply from April 2019 with pilots before then and they will only apply to businesses with a turnover of £85,000 per year, which is the VAT threshold, and then only for meeting their VAT obligations.
Originally the intention was to phase in full MTD for Income Tax Self-Assessment (ITSA), Value Added Tax (VAT) and Corporation Tax (CT) between tax years 2018/19 and 2020/21. However, widening the scope beyond those above the VAT threshold has been deferred and the Government has pledged that it will introduce expand MDT until the new system is working, and not before April 2020 at the earliest.
Is anyone exempt from Making Tax Digital?
The Government has also published an impact assessment covering people with disabilities and those in rural locations where there is poor broadband.
It has concluded that both groups will find it difficult to comply with MTD.
The report says: “Ultimately, if a business cannot go digital, it will not be required to do so. The exemptions under Making Tax Digital mirror the existing VAT online filing exemption.”
If your business must comply with the MTD then you should allow enough time before the 1st April 2019 deadline to source accounting software that will be compatible with the Government’s system, factor the cost into your cash flow, and familiarise yourself with the process.
Alternatively, if you have an accountant who already files your tax returns online, you might check they are prepared for the new rules and will comply.
It is also worth investigating whether it would be more cost effective and efficient to outsource it to them rather than getting to grips with the software in house. New software is linking bookkeeping with bank accounts to automate the necessary filings so now might be the time to investigate alternatives to your bookkeeping systems and how you produce and file reports.

Business Development & Marketing Finance General Uncategorized

SMEs are you ready for GDPR?

Decoding GDPROnly one in four SMEs have started preparing for the GDPR, the new EU wide data protection rules that will come into force on 25th May 2018, according to recent research by Close Brothers.
The new rules are intended to increase privacy and protection of individuals by reducing the amount of data held about them by businesses and restricting the use of that data to essential use and only permitted use.
The GDPR also makes it easier for someone to find out what data a business holds about them and for them to ask for it to be removed; it actually goes further by requiring businesses to have a specific reason for holding data about a person.
Failure to act and implement the new rules could incur massive fines and damage your business’ reputation.
Many SMEs have assumed they are too small for the rules to apply, but this is untrue.  It applies to any organisation that holds personal information, whether it be data about staff, job applicants, customers, prospective customers, contacts, suppliers or anyone else.
Essentially, SMEs should know what data they hold about people and ensure that they have that person’s consent to control or process it. One major difference between the UK’s Data Protection Act 1998 and new regulation is that businesses need specific permission from the relevant person who must opt in for the different uses of their data. For example it is legitimate to hold data about an order for goods and use that data to fulfil the order and retain essential information for audit purposes but not to use it for future marketing unless that person has specifically opted in to receive future marketing communications.
It goes further in that the opt-in is required for each type of communication. For example someone may opt in to receive newsletters but not other emails or marketing phone calls. Essentially it restricts the unsolicited nature of each form of communication and allows everyone to change their mind by opting out or unsubscribing at any time subsequent to opting in.
In addition to covering the type of data held and its usage, the GDPR also deals with the security of the data held. It requires a business to ensure the data is secure and is protected from “unauthorised or unlawful” processing, accidental loss, damage or destruction.
The opt-in element will have a huge impact on businesses that in the past have used data to market their products or services. In future, recipients of any communications must opt in before receiving the communications. This means them opting in for each and every type of communication, such as e-newsletters, product notices and brochures, discount offers, surveys and telesales calls.
Compliance with the GDPR after 25th May 2018 will be a legal requirement and I understand will be vigorously enforced by the Information Commissioners Office (ICO). I gather the ICO team has been increased four-fold and will be funded by fines for non-compliance. They have produced a helpful 12-steps guide as well as providing regular updates on their website. There is also an information helpline for SMEs on 0303 123 1113, choose option 4.

What about Brexit?

Britain’s exit from the European Union will not affect UK companies’ need to comply with the GDPR. The UK government is currently updating the 1998 Data Protection Act to include all the provisions in the GDPR meaning that it will soon become part of UK law.

Act now to prepare for GDPR

Security of data held should be checked to ensure it is secure and cannot be accessed by unauthorised personnel or stolen by third parties.
You should obtain opt-in permission from all existing contacts and use every form of contact before the 25th May as an opportunity to solicit opt-in since after that date you cannot contact anyone in an unsolicited manner.
An opt-in option and privacy notices should be included on the website where you ask for contact data.
An opt-in option should be included on all direct marketing materials, both online and in print.
Staff should be briefed and trained about the new regulations and the staff induction process updated for all new staff. The staff handbook should also be updated to cover the GDPR.
Review your contracts with any third parties you share data with and review the terms and conditions with customers and suppliers to cover the new regulations.
For businesses with 250 employees or more, there is also a requirement to appoint a data protection officer
There is not long to go before 25th May so businesses need to be focused on obtaining permission from their contacts to contact them in the future and getting their systems and processes up to date as soon as possible.

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

Can SMEs afford to use invoice discounting and factoring?

invoices in filing cabinetBoth invoice discounting and factoring are a means by which a business can borrow against the value of its invoices before they have been paid.
They can be a useful way of funding working capital and managing cash flow, especially for a rapidly growing business, but they also come at a cost.
Not surprisingly the finance comes at a cost which will depend on the services being provided, interest charged and risk of loss to the lender, some being less scrupulous than others.
The amount charged will cover interest on funds drawn and a service related fees. The service fees will change depending on the volume of invoices, value of invoices, concentration of invoices, percentage drawn down, maximum amount borrowed, the level of monitoring necessary and any credit insurance. They can also include set up, audit and introduction fees.
The funding agreement, often hidden in the small print, will include event fees such as termination fees, default fees, collection fees, notice penalties. Many also require the support of personal guarantees. On the face of it they can’t lose money, but you would be surprised at how many do.

What is the difference between invoice discounting and factoring?

With factoring, the service provider takes on managing the sales, ledger, credit control and chasing of invoice payments. With Invoice discounting the business remains responsible for its sales ledger and invoice chasing.
When considering whether to use either service businesses should weigh up the costs against the benefits of freeing time to manage the business (particularly in the case of factoring) and the enhanced control over cash flow, especially if it is intending to grow.
However, again, particularly with factoring, other borrowing avenues will be restricted because book debts will not be available as security.  While this choice provides some protection against bad debts, factors will also restrict your borrowing against poor quality debtors by either disallowing them for borrowing purposes or recording them if they aren’t paid within terms.
In terms of customer service, a business will need to consider the effect on its customer relations of having no direct contact with the business, and especially, how the factoring service treats its customers.
With invoice discounting a significant consideration is how robust the business’ in-house credit and invoice processes are and how the service compares with the rates that may be charged on an overdraft or bank loan. It should be pointed out that banks no longer want to provide overdrafts as a way of funding book debts.
In both cases, the event fees can be sufficiently large to justify some lenders looking for reasons to trigger them. Even with scrupulous lenders, regular defaults become a problem for both parties.
While both services may be an option to consider for a healthy business, it is questionable whether they are helpful to a business that is already in financial difficulty. Turnaround advisers often find themselves having to negotiate on behalf of companies with factors and invoice discounters to persuade them not to pull the plug when, although the money loaned is covered the lender wants to end the relationship and recover their money.

Banks, Lenders & Investors Finance General

The pros and cons of bitcoins for SMEs

bitcoinsRemarks by Jamie Dimon, chairman and CE of JP Morgan Chase, earlier this month disparaging the bitcoin virtual currencies as a “tool for criminals and money launderers” are perhaps no surprise. Nor is the scepticism that bitcoins are a bubble, an “Enron in the making” as quoted yesterday by Saudi billionaire Prince Alwaleed bin Talal.
For the mainstream banks the rise of cryptocurrencies represents the risk of a serious loss of revenue from currency exchange and other transaction charges.
However, cryptocurrencies like Bitcoin have been growing in popularity both among investors and SMEs, particularly those that trade via e-commerce or in several countries.
While there has been a significant growth in investors trading in bitcoins, this should come with a health warning.  Value can be volatile.  In January 2017 one Bitcoin was worth $800 and by June it had risen to $3000. But within a month the value had dropped to less than $2000 before rising nearly $3000 by the start of September.
Plainly, investment in the currency is only for the experienced investor with strong nerves and an ability to write off the investment at worst.

How useful is accepting payments in bitcoins to SMEs?

The advantages for businesses in allowing payment in bitcoins is in lower costs and therefore greater profits.
Accepting payments via debit or credit cards attracts significant transaction fees, whereas the charges made by companies that manage Bitcoins are significantly lower. Because bitcoins are not currencies issued by any government, trading in them is not subject to tax.
For small businesses the speed of transactions is another benefit. It can take up to a week before a credit card payment reaches the business’ account, whereas with bitcoins payments typically arrive within a couple of days.
Another benefit is saving on the high cost of currency conversion that is charged by banks.
Bitcoin payment is becoming increasingly popular with customers which presents an opportunity for those businesses that accept it.
There are, however, drawbacks to having a bitcoin account. There is no regulation in the UK, so it is not covered by the FCA (Financial Conduct Authority) and losses would not be covered under the Financial Services Compensation Scheme, which protects lost deposits of up to £85,000 from bank or savings accounts. There is also the perception, whether or not this is justified, that bitcoin transactions are used by those wishing to launder money, or by those operating in the ‘dark web’ or others trying to avoid paying tax. This is made easier by the distributed ledger payment system that confirms a payment without the need for disclosing a customer’s personal information. Use of bitcoins could therefore expose businesses to greater scrutiny by HMRC and anyone monitoring money laundering such as banks that receive the converted cash.
The other main risk is bitcoin value fluctuation, but this can be mitigated by using a payment processor to convert bitcoin transactions into actual currency (whether $US or £Sterling) and pay it into the company bank account.
For any business trading globally there are certain benefits to using bitcoins, but legitimate businesses need to have appropriate and secure systems supported by detailed record keeping in place.

Business Development & Marketing Finance General

SMEs should register an interest in big local infrastructure projects

cranes on the skyline at an infrastructure projectLocal businesses often complain that they are ignored as suppliers when big local infrastructure projects are in the pipeline, and this may have been true in the past.
Certainly, it was a complaint when the second nuclear power station, Sizewell B, was being built in Suffolk between 1987 and 1995.
However, with two new projects in the pipeline, at Hinckley Point, Somerset, and at Sizewell, Suffolk, that situation appears to have changed.
In both cases, the respective Chambers of Commerce are already engaged with main contractors EDF Energy and partners asking local businesses to register their interest as supplies to the project.
Both projects already have dedicated websites specifically for interested businesses to find out more and register their interest and provide details of what they supply so they can be invited to tender for works and mini-projects. There is a wealth of guidance, support and information on how to become suppliers. The information on both is available on the EDF Energy website.

No business is too small to become a supplier

Many local businesses may think they are too small to be involved in such projects.  While this may have been the case in the past there has been a change of emphasis to offer opportunities to local businesses, particularly those that provide quick response to mini-projects as they arise and those who provide service support.
Inevitably, there will be local labour opportunities for project managers, engineers, surveyors and construction workers with many of these being sourced from afar.
There are many opportunities to provide support for the non-local labour, such as accommodation, whether Bed and Breakfast, short term lets or portable buildings on site. Given that most sites are in rural locations, transport and catering facilities will also be needed. One example of the new initiative working is the catering at Hinkley Point C where a number of local firms submitted and won the tender to provide the on-site catering. Each firm including local bakers and caterers did not feel they could lead the contract by themselves but with support from the Hinkley Supply Chain Enabling Team and leadership from Somerset Chamber of Commerce they succeeded. Another example was the need to build a bridge to help conserve local badgers, this £350k contract was awarded to a small firm of local builders.
In addition to on-site opportunities the influx of a large temporary population offers scope for opportunities in the surrounding area. These include local shops, sports and leisure facilities, entertainment, healthcare and transport.
So, it is a mistake for any local SME to think it is either too small or its business is not relevant to a big infrastructure project.  The possibilities are many, and they are only limited by the imagination.

Business Development & Marketing Cash Flow & Forecasting Finance General

Are apprenticeships affordable for SMEs?

young apprentice learning to operate a mechanical sawAt the start of 2016 the Federation of Small Businesses (FSB) calculated that of the 5.5 million businesses in the UK an estimated 99.3% of them were SMEs, employing around 15.7 million people and accounting for 60% of UK employment.
Of these SMEs, which have increased by 59% since 2000, 95% fall into the Microbusiness category of those employing fewer than 10 people.
Representing just about every industry sector, SMEs are clearly a crucial part of the UK economy and, like their larger compatriots, many complain of skills shortages particularly in key sectors such as construction, engineering and catering.
No surprise then, that SMEs could be a fruitful location for apprenticeships and in August 2016 the FSB produced a report on the potential barriers to increasing their involvement.
While they found that a quarter of SMEs that currently have no apprentices would consider getting involved the FSB concluded that “more information and financial support are needed to help SMEs understand how apprenticeships work, what the costs are, what the benefits might be, and how to go about finding the right talent to help their business.”

Are grants enough to make apprenticeships affordable for SMEs?

Employers can receive up to 90% towards apprenticeship costs under the new Government scheme to be launched this May, one month after the apprenticeship levy on larger businesses begins on April 1.
The Government has also said that “Businesses with under 50 employees won’t pay anything if they employ apprentices under the age of 19, and will receive a £1,000 payment with an additional £1,000 payment to the training provider.”  In the recent budget, there was also a pledge to overhaul by 2020 the system of post-16 educational qualifications in areas such as engineering, design and construction, to just 15 so-called T-levels.
However, the smaller SMEs are often time and cash poor and it is debatable whether there is the spare capacity, regardless of the help towards the training costs, especially given the time and resources needed to train and administer new staff, let alone apprentices.
Concerns about the literacy and numeracy levels of school leavers could also add to the costs of taking on an apprentice and it must be remembered that apprentices are also employees so there will be additional costs such as NI contributions.
The Government issued a large collection of guidance notes earlier this month on the 15 funding bands, how the scheme will work, guides for employers, parents, approved training agencies, standards for specific industries including everything from fence installers to banking relationship managers reportedly with more to follow. This may help with the FSB’s concerns from last August.
But do SMEs, whose employees tend to be multi-disciplinary and fully occupied, have the time and capacity to also do all this additional online research as well as providing the in-house day-to-day management of schemes and the compliance rules that must be met?
The FSB analysis, perhaps not surprisingly, showed that numbers of SMEs are higher in Southern England relative to the resident population.
So, a warning this week from the Institute for Public Policy Research (IPPR) is particularly timely. It suggests that the apprenticeship levy, will raise less money and have a smaller impact in the areas that need it most, those that have been hit by deindustrialisation and suffer from low levels of qualifications, low productivity and low pay.
The new focus on upskilling young people to join the work force without a university education so that they do not end up in the cul de sac of unstable “gig” economy jobs and have some hope for future career progression is to be welcomed.
But there are plainly many questions about the costs in time and money before SMEs can feel confident that taking on apprentices is for them.

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

What next for business insolvencies in 2017

solvent or insolventCompany insolvencies for the whole of 2016 rose slightly, subject to a caveat from the Insolvency Service.
The latest results, published on Friday, 27th January, showed an annual increase of 12.6% on the year before, but the service said that this was “due to 1,796 connected personal service companies (PSCs) entering creditors’ voluntary liquidation (CVL) in Q4 following changes to claimable expense rules.”
Excluding these actually meant that insolvencies for 2016 had risen by 0.3% compared to 2015. The rise was driven by a rise of 1.1% in CVLs and a 0.7% rise in compulsory liquidations. All other types of insolvencies fell.

What was the problem with payment via PSCs?

It was estimated that the Government was losing around £400m of tax revenue because of the PSC set-up governing expense rules for freelancers and contractors.
The regulations were changed in the Spring 2016 Budget to eliminate a loophole in the HMRC IR35 provisions that enabled such workers to take their payments as dividends and a minimum wage from specially set up personal service companies thus enabling them to minimise their tax payments.
It was a system widely used by everyone from entertainers, IT contractors and public sector employees.  The government argued that they were not contractors at all but “disguised employees”.
The most vulnerable sectors in the UK economy and the outlook for 2017
Sector breakdowns for insolvencies published by the Insolvency Service lag behind by one quarter so the most recently available information is up to the end of Q3, September 2016.
In the 12 months to the end of Q3 2016 the construction sector suffered the highest number of new insolvencies, although the figure was down slightly at 0.05% on the 12 months ending in Q2 (June 2016). Next highest was wholesale and retail trade & repair of motor vehicles and motorcycles sector.
These, together with administrative and support service activities, accommodation and food service activities and manufacturing remain the most vulnerable sectors of the UK economy.
This week, business recovery practice, Begbies Traynor’s latest Red Flag research revealed that more than 275,000 companies were showing signs of “significant” financial distress at the end of last year.  In the final quarter of 2016 it found 276,518 businesses were experiencing ‘significant’ financial distress – that’s up 3% compared with the same time in 2015 and of these 91% were SMEs, almost a quarter of them in London.
There are signs that the volatility of £sterling and its effects on import prices for food, oil and raw materials are already stoking up inflation with no likelihood of any reduction in pressure on prices while Brexit uncertainty is ongoing and the likelihood is that there will continue to be an increase in insolvencies in throughout 2017.

Cash Flow & Forecasting Finance General

SMEs – don’t be caught out by April’s Road Tax changes

Road Tax April 2017 K2 Partners Business Blog

The Treasury is looking for ways to significantly increase taxes and one recent initiative was to change the duty on cars.
New Road Tax rates (aka Vehicle Excise Duties/VED) will come into force in April for all new cars registered on or after 1 April 2017.
In the first year, the changes, which were announced in the July 2015 budget, will only apply to new cars but the likelihood is that when the new system is fully in place in 2018 there will be further changes perhaps not only covering newly-registered cars.

What will the Road Tax changes mean?

Different rates will apply to cars with a purchase price below £40,000 and for those costing £40,000-plus. The tax applies to all new cars.
According to the HMRC website “First Year Rates (FYRs) for Road Tax (VED) will vary according to the carbon dioxide (CO2) emissions of the vehicle. A flat Standard Rate (SR) of £140 will apply in all subsequent years. except for zero-emission cars for which the SR will be £0.
“For cars above the £40,000 cut-off there will be a supplement of £310 on the SR for the first five years, after which Road Tax will revert to the SR of £140.”
You can find a full list of the rates here.
Primarily a revenue generating exercise for the Government, the new rates could have a significant impact on SMEs, whether they are buying new cars outright, or via asset finance or are leasing them.
Among those affected will be private hire and taxi businesses, many of which are owner-drivers. Given the high mileage that they do if they are successful businesses their cars are likely to need replacing more frequently, especially as all such vehicles are subject to annual local authority checks for licensing to ensure they are roadworthy and in sufficiently good condition to carry passengers.
But any SME that maintains a fleet of cars, perhaps for their sales force or for employees whose position requires them to visit customers and clients, may face significant increases in costs, especially if the company, rather than the individual user, is responsible for paying the Road Tax.
Lease hire agreements usually include the funders renewal of road tax as part of the service.  It is likely that the extra Road Tax costs will be passed on to the lessee as part of their monthly payments.

Business Development & Marketing General Insolvency

2016 review – an uneasy year for businesses

2016 reviewIt seems like a very long time since the then Chancellor, George Osborne, warned in January 2016 of a dangerous “cocktail of risks” facing the UK economy.
The British Chambers of Commerce (BCC) echoed this, citing volatile stock markets, plummeting commodity prices, a potential slowdown in China, a poor 2015 Christmas for retailers and uncertainty about the outcome of the referendum on the UK remaining in Europe.
March brought news of Tata Steel’s decision to sell off or close its UK steel operations, prompting fears for hundreds of jobs particularly in Port Talbot, Wales.  While by November Tata had announced it had agreed a deal with the various trades unions over Port Talbot, possibly safeguarding an estimated 8,000 jobs, the outcome is not yet 100% certain.
In April came news of yet another large retail collapse, this time BHS.
In the run-up to the June EU referendum there were signs of a marked slowdown in investment decisions, coupled with worries about skills shortages if restrictions should be imposed on overseas recruitment.
In June, of course, the outcome of the referendum was a majority in favour of leaving the EU and the first monthly Markit Purchase Managers’ Index (PMI) immediately thereafter showed that the UK economy had been shrinking at its fastest rate since 2009 with confidence in both manufacturing and services falling below the benchmark of 50.
The decision also precipitated a massive devaluation of £Sterling by 15% against the $Dollar and by 10% against the €Euro, which benefited exporters but was predicted to eventually feed through into higher prices for imports and increased inflation. In response, the Bank of England further reduced interest rates.
Another indication of slowing global economic growth came in September with the collapse of the South Korean company Hanjin Shipping, the world’s seventh largest container company.
However, on the whole business activity post-Referendum showed no marked signs of contraction and by November the monthly Markit PMI index was showing upward trends in activity in Construction and Services. But just this week the BCC was warning that the “business as usual” approach that had so far prevailed since was unlikely to last and that business optimism was “continuing to fall”.
At the same time, quarterly reports on business insolvencies have remained steady, showing only statistically insignificant increases.
Also in November Donald Trump won the US presidential campaign, prompting yet more concern and uncertainty, particularly about the impact on other economies, including the UK’s given his notably “protectionist” views as stated during the campaign.

What was 2016 like for SMEs?

The measures introduced in the 2015 Small Business, Enterprise and Employment Act started to come into force with April deadlines for UK companies to compile PSC (Persons with Significant Control) registers.  There were also changes to the taxation of income received from share dividends with the introduction of a new tax-free dividend personal allowance.
Pension Auto-enrolment continued and there was another potential worry for SMEs with the government’s proposals for businesses to file quarterly tax returns.
There was one bit of potentially good news in the April budget, when the threshold for business rate tax relief was increased to £15,000, which may be good news for small High Street retailers, once the outcome of September’s rates revaluations become clearer.
A change of regime in Government produced some recognition of the difficulties for SMEs with the new Chancellor, Philip Hammond’s Autumn Statement, promising extra investment in local transport and digital infrastructure as well as Rural Rate Relief being increased to 100%. But business costs are also mounting with increases in the national living wage, insurance premium tax and changes to NI rates.
The 2016 picture will not be complete, however, until the Christmas retail trading figures and the next set of quarterly insolvencies are revealed sometime in January 2017.

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

UK Business winners and losers – is uncertainty to be the new normal?

businessman on uncertain road aheadThe numbers of cranes on a city’s skyline are often taken as an indication of the health and vibrancy of its economy.
Not only are cranes evidence of demand, money and resources but also of jobs, not just in construction but, eventually, for occupiers of the buildings.
Whether such observations hold true in the current economic circumstances is open to question.
The most recent Markit/CIPS monthly snapshot on construction for November, published on December 2, would seem to reinforce the impression of health showing construction activity expanding to an eight-month high, albeit purchasing managers are also reporting a steep increase in materials costs.
On the other hand, however, on November 22 it was reported that a large Manchester-based heavy machinery plant-hire group, Hewden, with 40 branches across the UK and a workforce of 750, had gone into administration. 251 people, many of them crane operators, were made redundant. The Guardian report said Hewden was owned by private equity firm Sun Capital Partners, which had warned in October that market uncertainty following the Brexit vote had adversely affected a number of large construction and investment projects.
Yesterday’s publication of the IHS Markit/CIPS purchasing managers’ index for the Service sector also showed a rise from 55.2 in November from 54.5 the previous month. But here, too, there was a note of caution from Chris Williamson, chief business economist at IHS: “Rising prices – often linked to the weaker pound – are a big concern, however, and suggest that inflation is set to lift higher.”
These examples illustrate how difficult it is for SMEs to assess what they might be facing in their economic future and how best to prepare for it.

Known knowns and known unknowns

There are a number of triggers that could affect what happens both to the UK, EU and US economies and there are plenty of question marks over all of them.
First and most obvious in the UK, as the Supreme Court hearing gets under way into whether parliament’s consent is needed to trigger Article 50, is the uncertainty over the start date, length and likely outcome of negotiations to leave the EU.
Equally it is unclear whether the lower value of £Sterling will encourage or discourage investment in the UK. However, the fluctuations in the Exchange Rate and their effect on £Sterling in relation to the $US and to the €Euro will doubtless continue.
Yesterday, £Sterling had risen against the €Euro following the Italian referendum on constitutional change, in which the Government was defeated. Where will this leave both the fragile banks in Europe’s third largest economy and also the EU economy?
Perhaps the biggest unknown is what will happen when President-elect Trump takes over in January 2017. How protectionist will he be? Will he follow through with fiscal stimulus, which is likely to lead to both inflation and a rise in interest rates and a shift from economic recovery to recession as happened in the UK’s Heath Government in the 1970s? This time with considerably higher personal debt there is less room for manoeuvre and in a much larger economy than when UK asked for an IMF bail-out.
Then there is the recent seeming resurgence of OPEC in controlling output and thereby the price of oil.
There are many uncontrollable factors in a globally interconnected economy that are likely to buffet any national economy and affect its businesses, regardless of Brexit and whether SMEs are trading locally or are exporters.
The omens are not good but inevitably for some SMEs the prospects may be fantastic and for others quite the opposite. What is sure, though, is that for the foreseeable future the uncertainty of unknown unknowns is the new normal.

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

SMEs: financial caution, fragility and risk in an uncertain world

small business financeSMEs in the UK are being super-cautious about finance according to new research on SME resilience carried out by the company Hitachi Capital Invoice Finance.
At the same time, their research has found, many are in a precarious position because they are relying too heavily on a single large client.

Some details from the research 

27% of the 500 SME respondents had put investment plans on hold and were not planning to make any investments over the next 12 months but were concentrating on survival, while 57% of them had not sought any external finance in the previous 12 months. 41% of them said they were using overdraft facilities to fund their businesses and more than half said they were worried that Brexit would not only impact on their access to finance but would make it more difficult to obtain credit in the future.
Another worrying finding from the research was the numbers of SMEs, 17%, where a single large client was responsible for more than 50% of their turnover while a majority said that their biggest client represented more than 26% of their revenue.
This combination of caution about investment and external finance and the exposure that relying to such a significant extent on a single large client does not paint a picture of a buoyant, robust and optimistic SME sector.

Are there solutions?

Clearly SMEs need to develop contingency plans to allow for the loss of clients in the coming uncertain and likely volatile months with the aim of having no more than 10% of their revenue from any one client.
A revisit to their growth strategy to reposition activity to more strenuous efforts at finding new clients to balance their income profile regardless of whether they are earning good money from a large client. While they are in this position it may be wise to revisit the sales targets and marketing budget and to invest more in their growth strategy.
It is also true that SMEs need to see some significant recognition of their difficult trading conditions from the Government.  In the last year or two they have had to contend with compulsory pensions auto-enrolment, a rate revaluation and the prospect of significant additional costs from the proposal for quarterly tax returns. More recently there has been the volatility of £Sterling on the currency markets since the Brexit decision and rising import costs and gloomy prospects for inflation.
Nevertheless, life could be made somewhat easier for SMEs if there were some significant recognition of SMEs’ importance to the UK economy and jobs and some practical commitment in tomorrow’s Autumn Statement to investing properly and quickly in improving both the UK’s physical infrastructure such as roads and rail for freight transport, and real signs of progress on getting reliable digital infrastructure, such as high speed broadband to the many SMEs that are based throughout the country in rural locations and small towns.
Let us see what tomorrow’s Autumn Statement brings us.

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.

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

Steel industry's problems are benefiting the UK metal fabricators

Ironically, the causes of the woes currently besetting the UK’s steel industry are good news for the country’s metal fabricators.
The recent insolvency putting 1,700 jobs at Caparo at risk and job cuts affecting 1,200 employees announced by Tata Steel and closure of SSI in Redcar with 2,200 job losses are the result of both a slow-down in demand for steel and a reduction in prices worldwide, mainly due to ‘dumping’ from China but also due to the significant rise in energy costs in UK as a result of the government’s obligations on UK manufacturers to use renewable energy.
While yet to hit the insolvency statistics, the steel stock holders and distributors have also been affected. They have had to drop their prices, which is impacting on their own margins, and we are likely to see some significant losses due to writing down the value of their stock.
However the drop in steel prices for customers has benefited the UK metal fabrication industry who can now buy supplies at much lower cost while they have largely been able to maintain their prices.
This wasn’t always the case. The UK metal fabrication industry was significantly cut in the 1990s and 2000s, which led to a decline in apprenticeships and training for welders. Those that survived did so by improving their efficiency and often by investing in plant and machinery to reduce labour costs.
Many of the survivors are SMEs who also had a dire time after the 2008 collapse. More recently demand has returned to improve their order books and as a consequence their profits due to the double benefit of both the reduced steel prices and improved efficiency.
Metal fabricators have, however, been affected by a lack of UK-trained welders and machine operators following the decline of major industrial engineering industries such as ship building. Fortunately the European labour market has helped and they can easily recruit well-trained, highly skilled workers from Eastern Europe.
All this has meant that there are fewer UK fabricators overall but those that remain are becoming increasingly busy and in demand as growth in the economy kicks in.

Accounting & Bookkeeping General Rescue, Restructuring & Recovery Turnaround

How many suppliers does your business really need?

In the course of our work in helping SMEs to become more efficient and targeted, we often come across businesses that have a large number of suppliers.
Keeping track of ordering, invoicing and payment across many suppliers can be a needless burden on the administrative system. Especially when reconciling your statements with theirs.
It also makes it more difficult for the business to understand and manage the risks that may be hidden in its supply chain.
A typical example of a business with too many suppliers is the building company that goes to a number of different builders’ merchants for the same materials. It may be that at some point they have either found a supplier that was cheaper or that they had used another supplier to source materials not available with their usual one.
Over time, the list of suppliers grows and grows while the original reason for using them no longer applies.
While it is important for all businesses to keep their costs down and therefore to shop around for the best deal, the time spent ‘shopping round’ is a hidden cost that contributes to inefficiency by adding to the administrative burden.
If on the other hand a periodic review of prices is carried out and an approved supplier list is used, then the hidden cost of ‘shopping round’ and the administrative burden of managing lots of purchase ledger accounts can be significantly reduced.
It may of course be that there is an advantage to having back up suppliers but great deals can be achieved with a discount on price and high levels of service where the supplier has the “loyalty value” of your regular, longer term custom.

Business Development & Marketing General

There’s no “one size fits all” marketing strategy

It is fair to say that marketing in all its forms should be an ongoing activity for SMEs in both good and bad times.
This should be regarded as a universally-applicable rule and arguably the only other such rule about marketing is that there should be a clear marketing strategy and a plan that establishes discipline over expenditure and monitoring results.
Beyond that, however, so many businesses fall at the first hurdle, which is collecting the information on which to base a strategy and plan.
Identifying ideal customers to target is the first step. For an existing business they may be easier to identify but for a new business it is essential to define the customers to target in any marketing campaign. Who are they? What is their buying behaviour?
Where are you most likely to find them, particularly online? How are you going to approach them? Why will they buy from you?
All this should be obvious but it is surprising how many businesses buy advertising or embark on getting a website or setting up a business page on social media without doing so.
Then there is the question of what you want from your marketing. Is it about getting your company’s name and business known (brand recognition), about maintaining a good relationship with existing customers or about generating leads to new potential customers?
Marketing can be pro-active or reactive and different campaigns are needed for each objective to get the best return on the investment from a marketing budget.
There are so many “marketing gurus” around that this research is essential to help you to decide which of them is knowledgeable and which best avoided.

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

Recession or lacklustre growth in the next decade?

We all know that forecasting is an uncertain business and that news headlines should be treated with considerable caution.
But it is difficult for a small business to plan ahead without paying at least some attention to both.
Over the last week or two a random selection of economic and business news has included, inevitably, China’s continued economic slowdown, warnings of a “global financial bubble” from Germany’s finance minister Wolfgang Schaeuble, and worries from the World Bank about the effects of interest rate rises with national and the global economies still so unsettled.
In the UK, manufacturing and engineering growth has continued to decline according to the ONS (Office for National Statistics).
At the same time the service sector continues to perform strongly and energy and raw materials costs have been coming down.
Yet we are told that the UK economy is one of the best performing.
Given these mixed messages a report from McKinsey & Company outlines four possible scenarios for economic performance in the next decade. There are two negatives. They are uneven and volatile but high global growth, or volatile and weak global growth. On the other side are rapid, globally distributed growth with productivity increases and, finally, low but more stable growth.
All depend on how countries manage both their own economies and co-operation to tackle international challenges.
Clearly SMEs, even those that operate solely in a domestic market, cannot remain completely immune to wider economic issues but given such an uncertain outlook, perhaps the best message is to remain cautious but “Keep calm and carry on”.

Accounting & Bookkeeping Cash Flow & Forecasting Finance General HM Revenue & Customs, VAT & PAYE

SMEs need to keep on top of their tax bills

HM Revenue and Customs (HMRC) may have been accommodating in the early years after the 2008 financial crash, but not any longer.
In the last three years HMRC use of powers of distraint and seizure of goods from SMEs that have failed to pay VAT, PAYE and also on late payment of self assessment tax bills has been rapidly increasing.
In 2014-2015 distraint powers were used to seize business assets from 1,080 SMEs, according to the finance organisation Funding Options, quoted in an article by Business Money in July. By comparison, 1,376 seizures were carried out in 2011-12 and just 730 in 2010-11.
Previously, these powers had almost fallen into disuse. Then, after 2008 HMRC showed some forbearance for businesses facing difficult economic circumstances with them approving approximately 400,000 Time to Pay arrangements.
However, the signs are that for the last three years, with Government pressing for improved tax gathering, distraint has become more and more aggressively pursued and increasingly in cases of late payment of self-assessment tax bills.
Under these powers Revenue officers have enforcement rights and can attend company premises after issuing a Notice of Enforcement if payment is not made within seven days.
The officer can then take control of the company’s assets whether by walking possession (seizure of goods without removal) or immediate removal and if payment is not made within a further seven days, the goods can be sold to recover the money owed.
The introduction of real time monitoring of PAYE and wages SMEs a couple of years back means that HMRC has far more accurate information about what companies are likely to owe in tax and are plainly acting far more quickly and decisively to recover it.

Business Development & Marketing Cash Flow & Forecasting Finance General

No need for SMEs to panic over China

There has been a great deal of angst in the finance and business media over the impact China’s slowdown is having on stock markets around the world.
But actually, it could be argued that a reduction in their rate of growth is necessary as China’s economy reaches maturity. While the situation may suggest a slight slowdown in global growth and perhaps a further delay in raising interest rates there is little sign of worry about the prospects for the UK SMEs unless they sell to China.
Indeed the CBI this week revised its forecast for growth for the rest of the year from 2.5% to 2.6%.
For SMEs in particular, events on the wider global stage are unlikely to have much effect since most depend for their business on short term consumption.
Those that import from China may actually benefit from reduced cost as the price of Chinese products is likely to become cheaper.
Those SMEs that export luxury goods for China’s domestic retail market, however, may suffer a drop in orders as well as reduced margins due to currency devaluation.

Banks, Lenders & Investors Business Development & Marketing Finance General

Low interest rates – the lull before the storm!

It seems that some members of the Bank of England’s Monetary Policy Committee have broken the previous unanimity and are beginning to argue for a rise in interest rates sooner rather than later.
Most recently, Kristin Forbes, MPC member and MIT professor, has warned that leaving it too late could depress the current economic recovery because of the time lag between introduction and its effect feeding through into the economy.
In our view interest rate rises are unlikely to rise in the medium term because the MPC are aware of the storm when they do.
In terms of the interest rates being paid by SMEs, these are unlikely to rise much because SMEs are already paying huge premiums, often more than 10%. This has enabled the banks to restore their balance sheets, which has been the real concern for the MPC and government.
For small businesses considering growth plans, financed by borrowing, the preferred option for a while has been to look to online lending platforms.
Nevertheless, keeping an eye on consumer spending and cash flow to ensure business is
healthy enough to provide some room for manoeuvre may become more important for SMEs.
Where an interest rate rise will really impact is on consumers, many of whom still have unrealistic levels of personal debt. Most home owners are benefitting from the expiry of fixed interest rate mortgages that automatically switched onto low variable rates because they are pegged to the Bank rate. While servicing such mortgages, many still paying interest only, may currently seem easy, an increase of 0.5% will double interest payments for many. So much for historical rates above 5% a tenfold increase in payments for many.
The potential impact on consumers is being exacerbated by the current spending on capital goods such as new cars. Most new cars are bought on tick where the low cost of finance packages is helping drive the huge growth in sales.
The unprecedented period of low interest rates at 0.5% since March 2009 has lulled most consumers into believing they are the norm. Not that anyone likes unpleasant predictions but we believe it is a lull before the storm, a bigger one than any of us want to confront. At least it will develop slowly as rate setters and governments try to protect consumers from the reality of debt – debt has to be repaid even if this can be put off for the moment.

Cash Flow & Forecasting Finance General

The clock is ticking for Auto-enrolment for SMEs

This year the employers’ compulsory pension auto-enrolment scheme is starting to impact on some SMEs.
Employers will have to contribute to a pension scheme for any employee who is aged 22-plus, not already in a scheme and earning more than £8,105 a year. Initially the employer must contribute 1% of the employee’s earnings to a scheme, but this will rise to 3% by October 2018. Employees will also have 0.8% deducted from their salaries rising to 4% by 2018.
Every employer will eventually have to set up a suitable scheme and this will mean not only ensuring that they know their staging date (when they are due to begin payment) but have all the systems in place to meet the deadline.
The Pensions Regulator is advising that businesses need to allow 12 months ahead of their staging date to be sure they have everything ready.
A problem already identified is that the HMRC online PAYE software is not compatible with the online auto-enrolment system.
For those that don’t outsource their payroll management this will include buying and installing payroll software compatible with the pensions automatic enrolment software and identifying a suitable pension provider that is willing to participate.
Those who do outsource will need to check whether your payroll manager is able and willing to manage the auto-enrolment set-up and administration for you.
It is also becoming clear that many accountants, payroll management companies and pension providers are either unable or unwilling to take on the task for a very small workforce on the grounds that it is not cost-effective for them.
In that case SMEs as employers will have no option other than to manage the process themselves using the guidance to be found on the Pensions Regulator website, and this will be a challenge when trying to run a business, not to mention the significant increase in costs to business payrolls.
Make sure you know your staging date and allow plenty of time for planning.

Business Development & Marketing Finance General Turnaround

How can SMEs prepare for the National Living Wage?

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

Banks, Lenders & Investors Finance General

Donation crowdfunding can be useful to businesses

Donation crowdfunding, also called reward crowdfunding, is the third type of crowdfunding covered in my series. It is like Equity and Debt crowdfunding in that it is a way of raising money in small amounts from multiple contributors, but unlike the other two types, it doesn’t appear on the balance sheet.
The “investment” by donors does not generate a monetary return; instead they provide funds for a variety of reasons which mainly relate to receiving benefits or rewards, or simply the “feel good factor” of contributing to a worthy cause
The benefits or rewards can be products or services that arise from the project such as gifts, discount vouchers, event tickets or early release software or products. The other main reason is where the cause is a worthy one such that the donation is more of a charitable nature..
Unlike other forms of crowdfunding, donation crowdfunding is not regulated by the Financial Conduct Authority (FCA).
Clearly it is becoming popular with charities and those supporting social causes, but it can also be a useful way for early stage businesses to raise finance for prototypes or test the viability of ideas and products.
A good example was an online game development company that raised £1,578,316 from 25,681 backers. The fundraising involved raising finance for Elite: Dangerous, a space game where the fundraising campaign benefited from a huge, captive fan base who pledged amounts from £5 to £5,000 plus with five backers pledging the top level of support for a number of levels of in-game bonuses such as credit, rank and cargo, enticing those that wanted to compete in the online universe to get a head start.
We also know of one young product designer who has developed and tested a set of portable, lightweight and easily-storable injection-moulded plastic cutlery for use in the office or outdoors, and is currently using donation crowdfunding to cover manufacturing costs. Donors will get special limited edition colour sets that will be packaged and tailored to the level of the donation. The target is £10,000 and in 10 days since launch in early August 2015, just over £4,200 had been raised.

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

An overview of crowdfunding

Funding for businesses and in particular those wanting to invest in development and growth has become extremely difficult to find. Banks have become risk averse and need evermore capital-liquidity provisions which has combined to make it uneconomic to lend to SMEs and those who can’t provide asset backed security.
This has led to the popularity of raising money using online via crowdfunding platforms.
Crowdfunding can be defined as the act of raising money via a website from a relatively large number of small investors.
This is a fairly new form of financing and the last two years has seen some clarity emerging as to the different types and what each involves.
In our next few blogs we will be looking at each type of crowdfunding. This first article is a short overview.
There are three main types of crowdfunding. They are Equity, Debt (aka peer to business or market place lending) and Donation (aka Reward) crowdfunding.
In the first, individuals provide capital for shares in the business looking for funding and expect to receive dividends and/or a profit from a future sale of the shares. They are typically used by start-ups, early stage & growth businesses.
In the second type, Debt crowdfunding, businesses are looking to borrow money as repayment loans, convertible loans or loans with warrant. Lenders are typically repaid at regular intervals with interest on terms that are often more competitive than can be achieved from a bank.
Donation crowdfunding is generally used to raise non-returnable money for a worthy cause, so there is a social component and the “reward” is generally in the form of recognition for investors’ contribution rather than any financial return.
There has been some concern that small investors in such schemes may be inexperienced in investment and its risks and this has led to the introduction of regulation via the Financial Conduct Authority (FCA) in an effort to protect them.
Since April 2015 any organisation offering Equity or Debt crowdfunding facilities must apply to the FCA for permission to operate and must supply supporting evidence including a detailed business plan, evidence of capital reserves, a website showing information that details not only the benefits but also the risks involved.
The FCA is responsible for regulating loan-based and investment-based crowdfunding such that only regulated firms should be used to raise finance. The main restriction relates to the marketing promotion to investors in Equity and requires each investor to acknowledge they are either a high net worth or sophisticated investor or to confirm that they will invest less than 10% of their assets in crowdfunding. This means that firms raising Equity should take advice before doing any self promotion of Equity crowdfunding.
The FCA does not regulate Donation crowdfunding.
For other sources of business finance you can download a free Finance Guide from our website using this link.

Business Development & Marketing General HR, Redundancy & Trade Unions

Do SMEs need an employee handbook?

Many SME owners ask why they need the formality of an employee handbook for their staff.
There are several reasons, in our view. A handbook provides clarity about the company’s expectations and details of additional terms and conditions that form part of the contract of employment but which might need to change from time to time.
It helps cut down on misunderstandings and could provide some legal protection for the company in the event of a dispute with an employee.
When demands on management time are considerable, as they often are in a SME, a handbook saves time and provides clarity about what is expected from new recruits during their induction, when there is a lot of information to digest. It also acts as a useful reference for everyone in the company especially when dealing with employee- related issues.
Well written, in clear and simple English it can offer a welcome and sense of belonging to the nervous new recruit.
Equally importantly it helps a company define what it stands for and can be used to communicate company aims and values.
So what information should be included? The basics are general company policies, rules and regulations (dress code; how people interact with customers; harassment; safety regulations; use of phones and IT for personal purposes), info on reclaiming expenses, booking holidays, sick leave, salary and performance reviews, company benefits etc. Although statutory it is useful to set out the steps for disciplinary and redundancy procedures which can also be used as a checklist by both managers and employees.
An employee handbook does not need to be expensively produced and most of the contents are standard and freely available. It is more important that it contains accurate, correct and easy to understand information.
It is, however, a good idea to have the handbook checked either by an HR or legal professional to ensure everything it contains is clear, accurate and complies with any employment legislation.

Business Development & Marketing General HR, Redundancy & Trade Unions

A positive induction experience is key to performance and retention of new recruits

Recruiting staff can be a costly and time-consuming process for SMEs and doesn’t finish when someone is given the job. It is worth putting some time and effort into helping them feel welcome and also ensuring they become productive as quickly as possible.
A new recruit is likely to be nervous and apprehensive during their first few weeks and according to ACAS, the highest labour turnover is among new employees. It warns that employers should allow for a period of learning before they can reach peak efficiency.
An effective induction process can make all the difference and it is worth structuring the process to cover the important elements for both the employer and the employee so they settle in as quickly as possible.
Depending on the duties and responsibilities a number of key elements should be covered. Everyone needs general information about the company such as such as its values, employment terms and conditions, holiday entitlements and booking, safety training and any key policies on such things as discipline, sexual harassment, dress code, customer interaction, use of the internet and mobile phones etc.
The new recruit will also need relevant training for doing their job such as introductions to key people, learning about relevant systems, processes paperwork and filing and how to use technology.
It is also necessary to set expectations about performance and what is important and how these will be monitored and reviewed.
The induction process and relevant training should be structured over a period of time that helps the newcomer learn and absorb what they will need to know to do their job effectively.
Two things that can help to ensure an effective and positive induction process are a buddy system, where an existing staff member is paired with the newcomer to help them find their feet, and a feedback session once induction is completed to assess whether the process has been effective or perhaps needs some modification.

Business Development & Marketing Finance General Uncategorized

How to ensure you are recruiting the right people

For a small businesses in particular, recruiting the right employees can be a challenge.
Key elements of recruitment are knowing the sort of person you want and being clear about what you want them to do.
HR and recruitment advisers will all focus on a job description but personal values and other qualities may be far more important since you are often looking for someone who will ‘fit in’. This is key to handing over responsibility when you have done it all yourself up to now.
Finding potential candidates, knowing how to interview them and selecting someone can feel somewhat random as on paper many candidates look fantastic.
But don’t worry about getting it wrong, probation periods and a trial and error approach will eventually find the right person providing you don’t keep anyone who isn’t right.
Despite the above, it is worth taking the time to write an accurate job and person description. It forces you to think about exactly what is required for the role and will provide a checklist throughout the selection and interview stages.
Every job and role description should include the job title and the position in the company, details of the line manager and any other members of staff reporting to them, a summary of the general nature, main purpose, and objectives of the job, a list of the main duties or tasks of the employee, which skills/qualifications are essential and which are desirable, plus any equipment or software requirements and the salary and benefits. The checklist of criteria for candidates should also cover the intangible qualities you are looking for.
Sourcing candidates can be an expensive process if using a recruitment agency. Advertising in local media and dealing with applicants yourself can be much cheaper although more time consuming. There are other alternatives worth considering such as looking through records of past interviewees, advertising in places frequented by your ideal candidate, actively searching profiles and social networking sites and attending suitable events or asking existing staff.
Interviewing can be tricky but the aim should be a positive experience for both interviewer and candidate. A checklist of questions and keeping notes of responses and your impressions will help.
If your selection process has already identified those who have the right skills it’s worth remembering that at interview stage you can focus on the person and how they will fit in.
Only after you have offered someone the job will you really know if they are right so don’t be afraid of choosing the wrong person. You can try again. Whichever process you adopt for recruiting staff, don’t keep on the wrong people, don’t keep on those that don’t ‘fit in’.

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.

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

Why do SMEs need to understand their balance sheet?

For years we’ve seen many SMEs who do not produce regular management accounts, which we would argue are far more important to the small company than year-end accounts.
Too many SMEs rely on the profit and loss and do not put enough time into understanding their balance sheets.
Yet it is the balance sheet that tells a business what is really in the ‘tank’ which is more than simply the cash in the bank. Current assets and in particular those like recent debtors, work in progress and easy to sell stock that can all be quickly turned into cash are key. The other item to monitor is current liabilities such as trade creditors and HMRC liabilities. Withholding payment can provide temporary respite and even improve the cash balance in the bank but creditors don’t go away.
A related issue is that a lot of SMEs are reliant on factoring or invoice discounting their book debts which essentially means that there is little cash to come back to them when the book debts are paid. All too often such companies have large liabilities without current assets to service them so they become reliant on new sales or prepayments which are in fact another liability.
If, for example, a business has book debts of £10,000 which are factored at 70% and a liability to trade creditors of £5,000, it has a problem because it really only has £3,000 to pay the trade creditors since the factoring company will keep £7,000 of book debts when they are paid.
It is crucial for all SMEs and in particular those planning to grow to understand their balance sheet and ensure that they have sufficient cash to fund growth without over trading, ie running out of cash.
I shall address monitoring the balance sheet and possible key indicators in a future blog.

Business Development & Marketing Finance General Turnaround

Good complaints handling is crucial to SMEs’ survival

Ignoring or handling a complaint badly can be the death of an otherwise perfectly sound small business.
While many companies have in the past got away with ignoring complaints, social media is making it easier for them to be held to account. And in a competitive market, customers can choose where to shop which can have a swift and dramatic impact on a business.
The recent tribulations of Thomas Cook and how it acted following the death of two children from carbon monoxide poisoning in a holiday cottage in 2006 are a good example of how badly things can go wrong.
Particularly relevant to many SMEs are the client feedback websites like TripAdviser, Trivago and Trustatrader that can influence a purchase decision.
So what are the crucial steps that should be taken if something does go wrong?
All businesses should have a complaints handling procedure and make sure all employees are briefed and follow it.
It should include the steps to be taken:
Firstly, the person who receives the complaint should apologise and take the full details of what has happened.
Secondly, someone with authority to act should be alerted as soon as possible and they should let the complainant know they are taking responsibility for dealing with the complaint and deal with it promptly.
Thirdly, in an age where people regularly put their complaints onto social media the SME should publicise its apology as widely as possible and how it put things right.
We would advocate that speaking to customers, feedback forms and satisfaction questionnaires during and immediately after the client interaction will highlight potential problems that can be nipped in the bud, long before they become a serious grievance.
Remember also that even if the problem was caused by a supplier or sub contractor, or happened under a previous regime that cuts no ice for a complainant with a grievance.
How does your company handle complaints from unhappy customers?

Banks, Lenders & Investors Finance General

Can Private Equity solve the funding gap?

The equity funding gap remains a huge problem for SMEs.
There seem to be two gaps. The first is for businesses raising between £500,000 and £2 million of equity where below this threshold there is a healthy market of Angel and Crowd investors for businesses to approach, but for some reason
Private Equity is focusing on much larger investments, normally above £2m.
The second gap is for businesses wishing to invest in R&D or marketing where it seems that Private Equity finance has become more like debt finance, focusing mainly on profitable businesses.
So if you had, say, a chain of five restaurants with a proven business model you would have no shortage of funds for the next five. If, on the other hand, you wanted to grow from one to two or three you would have a problem.
Despite the rhetoric from Government, banks and many others about the need to support SMEs if economic growth is to be restored to pre-2008 crisis levels, the incentives aren’t working.
With appropriate government incentives, we believe that PE firms could be encouraged to fund the equity gap.

Business Development & Marketing Finance General Turnaround

Betrayed trust – a lesson for all SMEs

Like the public’s trust in politicians, the consumers’ trust in a wide range of businesses has plummeted.
They include energy suppliers, banks, insurance companies, mobile phone companies and the big supermarkets. All have been guilty of marketing complex offers for products, purporting to be better value, in such a way that consumers cannot with any confidence compare them.
Betrayed trust has led to a marked change in buying behaviour such that people no longer stick with one supplier.
The most noticeable moves have been in the grocery retail sector, where companies like Aldi and Lidl have seen their profits rise by up to 10% and one of the biggest casualties has been Tesco, whose behaviour towards both suppliers and customers has been exposed as less than honourable.
Generally, consumers will assess the value and affordability of a higher-priced product compared with a cheaper one and will buy whichever suits them, but only if they feel they are getting value for money.
It is a mistake to believe consumers can be bamboozled by alleged bargains that then turn out not to be. It is also a mistake to insult their intelligence.
Giving fair value, good service and a reputation for being trustworthy are valuable assets for any business’ reputation. There is a lesson and an opportunity here for SMEs, who can often demonstrate these qualities in a way that the bigger organisations cannot.
The key ingredient is trust.
How do you demonstrate trustworthiness to your customers?

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

What’s the point of a business plan?

Business gurus will insist that a SME has no credibility or chance of success without a proper business plan.
There’s no prospect of raising finance without one, even, these days via crowd funding.
But many small business owners struggle with the concept of setting targets for revenue, growth or increased turnover in one, three or even five years time, especially given the volatility of local, national and export markets since 2008.
It can feel like crystal ball gazing or fantasy. Who knows what may happen next?
But what most forget is that a plan isn’t set in stone. It needs to be re-visited regularly and should be adjusted as conditions change.
Most business advisers would advise flexibility and regular reviews of performance so that goals and decisions about spending can be adjusted accordingly.
As part of a flexible business plan, nowadays an essential ingredient is the cash flow forecast.
This can then be used to spend more or less depending on the availability of cash and the return on it being invested such as on growth and marketing initiatives, or on efficiency and cost reduction measures.
For businesses to successfully survive the economic uncertainties that look as though they may be with us for some more years they will need to plan for multiple outcomes regardless of what is planned.
So yes, a business plan is still an essential map through uncharted waters as long as it is looked at regularly and adjusted when necessary.

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

Labour's promise on zero hours contracts may result in a rise in unemployment

The run-up to an election can be relied on to generate ambiguously-worded promises that may or may not be delivered by the eventual winner.
One such is the promise in Labour’s manifesto to “ban exploitative zero hours contracts so that if you work regular hours you get a regular contract”.
This pledge has been truncated in some media to “ban exploitative zero hours contracts”.
Either way the pledge could be read in more than one way. Is it a complete ban on all zero hours contracts or is the key word here “exploitative”?
The fact is that a zero hours contract can be very useful, particularly for SMEs to justify employing staff. In a volatile market it gives a company flexibility and allows it to keep overheads as low as possible by tailoring the workforce to demand. Orders cannot be guaranteed and businesses will behave rationally. If they cannot use zero hours contracts then they have other alternatives such as overtime for existing employees, to simply not take on the work, to outsource it to low-wage or more flexible countries, or they can use agency-supplied workers.
There is one aspect of “exploitation” that does need to be addressed which is when an employer makes the contract exclusive to them thus preventing the employee from taking any other work to fill in the gaps.
It is acknowledged that there is an issue for employees due to the lack of a guarantee of a minimum level of hours. There is however a market for jobs whereby employees will weight up the wages and security offered by some employers against those of others and behave rationally. It is also why the market for jobs needs to be underpinned by an effective unemployment benefits system.
So what is Labour really proposing? To close the loopholes that allow exploitation by allowing workers to have more than one zero hours contract? To get rid of zero hours contracts all together, and replace them, with what? To limit them somehow, whether a maximum period of work, or by size of employer?
Absent all other factors, any major reduction in the use of zero hours contracts will result in a rise of unemployment. This may however be the real objective of Labour’s paymasters as it is believed that very few employees on zero hours contracts are members of unions.

Accounting & Bookkeeping Cash Flow & Forecasting County Court, Legal & Litigation Debt Collection & Credit Management Factoring, Invoice Discounting & Asset Finance Finance Rescue, Restructuring & Recovery Turnaround

Can SMEs afford to recover debts?

From this week SMEs wanting to pursue recovery of a debt of £20,000 or more through the civil courts will have to pay an advanced fee of £1,000 or more.
The fees for civil courts have been increased by an estimated 600%, on a sliding scale calculated at 5% of the value of the amount claimed.
The payment has been increased by more than the actual cost of court action and is therefore called an “enhanced” fee.
The worry is that debtors will have even less incentive to pay what they owe if they suspect their creditor cannot afford the court fees to recover debts.
SMEs would be well advised to take even greater care to protect themselves when taking on new customers. For B to B services it is always advisable to check the credit history of a potential business client and be very clear on the wording of any contract.
Businesses should also check the small print of any credit insurance they might have. They need to know the cost of making a claim in addition to that for the credit insurance as claims normally require proof of default such as getting a court judgement and enforcing this before being able to make a claim.
This also may justify factoring where the finance provider normally collects the debts, although beware any recourse clause that allows them to transfer uncollected debts back to the company.
For both B to B and B to C businesses it is also advisable to review credit risk and terms such as deposits, significant early payment discounts and security including personal guarantees should be considered. Why wouldn’t a personal guarantee be provided if the client’s intention is to pay the debt?
A supplier of goods to Viper Guard, my vehicle parts company, offers a 30% discount for payment within 30 days. They always get paid on time.
While final approval was passed in the House of Lords last week, it is expected that the Law Society and other lawyers’ representative bodies will seek a judicial review of the legality of the new charges.

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

Pre-election honeymoon period for businesses?

With an election looming it is unlikely that there will be any controversial legislation between now and May that will upset SME voters.
There may, on the other hand, be promises made in party manifestos, though we’re not commenting on whether they will be kept!
The pre-election honeymoon period is, however, a good time for businesses to get their finances and their operations in order.
Personal tax returns should have already been submitted (by 31 January) and firms ought to be ahead of the curve with their RTI (Real Time Information) systems in place (the deadline for SMEs is 6 March). It is also time for SMEs to make sure they have a planning time frame for pensions auto-enrolment as the various deadlines are looming (depending on the number of employees and whether an application for deferral has been agreed).
So this period provides a small breathing space for businesses to do some housekeeping and make sure their affairs are in order before the next onslaught of initiatives from a new government, which may be one that philosophically doesn’t like businesses.
A close look at the monthly management accounts may identify adjustments that can be made to operations that improve efficiency, cut costs or reduce risk. It may also identify scope for reducing debt or building up a war chest for investment. It may identify finance facilities that are due for renewal in the near future that might better be renewed early.
It could also be a good time to assess how well the marketing has been performing and tweak it if necessary.
How will you use this time to create a sharper, more efficient and more competitive business for the next financial year and be ready for whatever the election brings?

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Is short term investment damaging future business prosperity?

For many years, the UK economy has depended heavily on consumer spending and on property speculation.
This may have led investors, even pension funds that require steady returns over many years, to focus too heavily on short term investment and gain and, therefore, on quarterly or annual reports and results thus undermining their willingness to wait for future returns.
However, the creative infrastructure that led to such inventions as the steam engine depended not only on “lightbulb” moments but also on people who were educated, skilled and above all had the time to think slowly and in depth.
Recently the Bank of England’s Chief Economist, Andy Haldane, has been worrying that the development of the internet has also undermined the ability to think slowly and in depth and thus the patience needed for business innovation and progress.
If UK businesses, from SMEs to large corporations, are to remain at the forefront of innovation they will need continued investment in the best brains, in research and development and in a decent infrastructure and that means investors willing to be patient for the long haul.
Is it time that more emphasis was put on education, training, employee development and perhaps even public investment in longer term projects to emphasise the importance of sustained effort and patience?

Business Development & Marketing General Turnaround

SMEs have an opportunity to outshine big business

There is a lot of scepticism and distrust among SMEs and consumers about the values and ethics of big corporations at the moment.
One of its most well known manifestations is the support for the Shop Local initiative that has been growing over the last few years.
This is the perfect time for SMEs to stand out and enhance their reputations by demonstrating what they give back to the community and outshine big business.
Often, people in SMEs just “get on with it”, whether by adopting a charity, improving work conditions in some small way, or even something as simple as giving up a couple of hours to help a young person to plan their route into work, or find out about an industry or profession that they think might appeal to them.
A new, nationwide initiative called Trading for Good has been set up to help them to publicise this. It is a non profit organisation and free to join. It offers SMEs the opportunity to register and document their good deeds. There are annual awards for five such good deeds in a year that can earn companies a badge and a certificate to display on their marketing literature.
For SMEs looking for new ways to promote themselves as more ethical and committed to their communities than some of the bigger businesses this is an initiative to consider adding to the marketing mix.

Business Development & Marketing Finance General Turnaround

Does your business ask for testimonials?

Small traders do not always have the budget for expensive marketing but they do need to be visible; so getting noticed on social media can be particularly valuable, especially on Facebook and LinkedIn.
But how do potential customers tell whether these businesses deliver good quality products and services?
Many SMEs have their own networks and get business by being recommended via local and online groups.
A personal introduction is often the best form of referral but a good reputation can be established online.
However, even then, the potential customer is likely to carry out further research before committing to buying, especially for tradesmen and for business to business support and professional services.
This is where genuine recommendations from satisfied clients and customers are the key, especially if the clients who made them are willing to be contacted by potential clients.
Recommendations and testimonials in addition to being a “thank you” for work well done, are also great for the business’ reputation. They should be part of every SME profile, business page and website.
Sometimes a client will volunteer a testimonial or recommendation without being asked but the question is do you, and should you, actually ask for them as part of your marketing strategy?

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

Should SMEs stop complaining and just get on with business?

As another large bank, HSBC, is named for helping wealthy clients to evade tax payments, a new poll carried out among 2000 SMEs has revealed that three quarters of those responding felt that big companies put profits before ethical standards.
76% of them also felt that big businesses acted unfairly towards them.
The poll has prompted the FPB (Forum of Private Business) to call for a five-point business ethics plan to protect and promote the UK’s SMEs.
There is likely to be a clamour of complaint and demand in the run-up to the election, not to mention party promises to ditch red tape, make lending to SMEs easier and so on. Do they really care or simply want our vote?
Whether any of this actually happens, whichever party, or parties are elected, remains to be seen.
However, all of this is wearyingly familiar and leads us to question whether it would be wiser for SMEs to just get on with business, sell, keep control of cash flow, spending and growth plans, and not expect politicians to make things better?

Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance General Insolvency Rescue, Restructuring & Recovery Turnaround

Is there a solution for SMEs struggling with lengthy payment terms?

Large companies that impose lengthy periods of ‘end of month plus 90 days’ for invoice payment present a dilemma for small businesses.
On the one hand it may bring in large orders and be good for their reputation as a supplier to a well-known large brand. On the other hand, however, the lengthy wait for payment can cause serious cash flow difficulties.
Large companies are getting away with imposing such terms despite being named and shamed, the latest being beer company AB InBev (payment in 120 days) and Heinz (payment extended to 97 days).
In an attempt to hold companies to account, the Federation of Small Business (FSB) has called for a compulsory code committing large companies to displaying their maximum and average payment terms.
While we can certainly sympathise with the outrage over this behaviour and agree with FSB’s request that firms disclose their longest and average payment terms, there are ways that SMEs can fund themselves while they wait for payment.
Apart from an overdraft or loan secured against assets such as the sales ledger the obvious solutions are factoring invoices (selling debt) or invoice discounting (borrow against invoices). There are other sources that can help fund working capital such as credit to customers. These include the alternative and online funding markets that have a number of sales ledger and single debt offerings including the prospect of selling or borrowing against as single invoice. Another solution is trade finance, although quite specialist it is useful for funding large transactions and especially useful for SMEs when they get a large one-off order.
K2 publishes a Business Finance Guide covering a wide range of options for business finance, available free through the Knowledge Bank on our website

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

SMEs need contingency plans to survive a disaster

What would you do if…

  1. Your office equipment failed or you had no power for a week?
  2. Your phone stopped ringing because a cable or VOIP was down?
  3. You couldn’t access your e-mails or cloud based files because you had a problem with your network or IP provider?

Losing the ability to operate a business in the event of a minor, let alone major disaster can have serious consequences that in turn can impact on sales, reputation and cash flow.
Despite this, few businesses have contingency plans for possible disaster scenarios or have a back-up in place for such situations.
If you rely heavily on office-based equipment such as computers and printers it makes sense to also have laptop and access to a printer. Separate access to wifi is also useful. If the telephones are down then knowing how to switch calls to VOIP, another phone or a mobile is essential. If you rely on access to desktop or server based files then cloud based systems will give you instant access which may be far quicker than relying on back-up tapes and hard drives. It may be strange but all too often the access codes are stored in a computer that is down.
Laptops, tablets, mobile devices and virtual offices all make it much easier to work remotely but some planning means there can be a seamless transition in the event of a disaster.
Please share your own backup plans and any tips for others to adopt.

Business Development & Marketing General Uncategorized

The marketing value of "thank you" in business

We recently heard of a SME owner who sent out a New Year’s greeting card to their customers and suppliers with a hand-written thank you message for their support during the year.
It was a small thing, but thoughtful, personal and hugely appreciated judging by all the positive comments it generated on social media, which turned the courtesy into a great piece of marketing.
We also know of a very successful cosmetic surgeon who wrote a hand-written note as a follow-up to the contacts he made and as a result built a successful business which he attributed to his personal attention in writing letters.
As the economic recovery continues increasing numbers of small traders and SME start-ups are appearing and not all of them are offering something unique, so the competition is heating up.
Despite the pace of change and the digital revolution they will need a way to differentiate themselves from the rest.
Hand written and personal thank you messages could be an effective way of doing this and therefore still have a place in the marketing mix.
Have you tried it and with what results?

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.

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

Planning ahead? Declutter first

The period between Christmas and New Year is a time when many SMEs plan ahead for the next year.
Something that is often forgotten, however, is that it is difficult to see clearly through a pile of unfinished business that has been put to the bottom of the list because it was not urgent.
Is your book keeping up to date? Have you done your expenses? Does filing need attention? Is it time to cull some of those contacts who might have been useful but with whom you have had no interaction?
Planning ahead is not only about setting new goals and targets but also about becoming more organised so that progress can be monitored and reviewed at regular intervals, and your plans adjusted accordingly.
Preparing for next year is not easy if the information on the past year’s performance is not up to date.
Equally it is hard to think clearly, let alone plan when surrounded by clutter or outstanding actions.
If this is a situation you recognise, perhaps the decluttering process will encourage you to consider how to make life easier next year. There are a number of ways to reduce the build up of clutter, they are however boring since they involve discipline which is something most entrepreneurs lack.
The logical solution is to set aside a specific slot in the diary, every day, week or month to ensure that the low priority but essential jobs such as record keeping and admin get done. It also makes sense to ask why you are doing tasks, indeed your time is valuable so stop doing non essential tasks if they aren’t necessary, or consider outsourcing regular activities such as accounts or filing.
Loud music can help you declutter – I recommend Queen.

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:
Do also contact us at K2 as we are familiar with this and other sources of finance.

Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

Export opportunities for SMEs? Go take a look

A global economy does not necessarily mean a homogeneous economy.
Many SMEs struggling to grow their business in the currently unstable UK market doubt whether there will be demand overseas for the goods or services they offer locally, but they could be wrong.
Former property surveyor Chris Ives, writing in the Guardian small business column, is a good example. He set up a micro brewery producing unusual beers after losing his job in the 2008 crash.
Daunted at first by the risk involved in venturing into export, by the perceived expense and by a lack of confidence he took advantage of the facilities offered by UKTI (UK Trade and Investment) and an opportunity to join trade missions run by a well-known bank.
Now he is exporting to the US, Canada and Scandinavia.
He says the keys to successful exporting for a small business depend on visiting your potential market, doing the research and meeting potential partners.
Do you know other small businesses that have made a success of exporting?

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.

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

Should SMEs ignore the doom mongers?

Many small business owners will be members of their local Chambers of Commerce, perhaps the FSB (Federation of Small Businesses) and their own trade bodies.
Some will also keep a close eye on the business and economic news in the business media. But what kinds of messages do they get from all this?
As they say, “bad news sells”. There has been a fair amount of doom and gloom in the headlines. The Prime Minister’s warnings of the threat of EU stagnation to the UK economy and a new CBI survey reporting that optimism in the service sector is at its lowest for 21 months are two recent examples.
Arguably, most SMEs will be keeping an eye on their cash flow, management accounts, orders and profits as part of the daily tasks of running a business. So they will know how their own businesses are performing.
But how much notice should they take of the UK economy?
It is difficult enough to plan ahead and especially when considering investment in growth. It is even more difficult in times of economic uncertainty or volatility.
There is some evidence that reports of diminishing confidence actually become a self fulfilling prophecy that actually affects business activity.
So should SMEs just grow a thick skin, ignore it all and carry on regardless?

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

Another bank inquiry – increased costs for SMEs?

Yet another massive fine, RBS again, this time £56 million for a computer meltdown in 2012 that left people unable to access their accounts.
In recent weeks there seems to have been a steady stream of fines for a variety of misdeeds.
Yet will it make any difference?
We, along with many others, have been saying for months if not years that SMEs and personal customers have been badly served by the “big four” (Lloyds, HSBC, RBS and Barclays) who between them have 85% of the small business banking and 77% of the personal account markets in the UK.
And now the Competition and Markets Authority (CMA) has begun an 18-month investigation into how banks treat their customers.
Who knows how many more revelations about bank misbehaviour are yet to emerge from this new investigation?
Will there be more fines?
Despite the schadenfreude, let’s be clear fines are ultimately paid by customers, not the banks.
What has emerged is that the cleanup now means that banks don’t make much out of their SME and personal accounts which has resulted in the introduction of various regular charges and closure of branches.
It is not yet clear whether the rhetoric will result in any meaningful change that improves the relationship between banks and SMEs.
It is however clear that the cost of banking services will increase for SMEs.

Cash Flow & Forecasting Finance General Insolvency Turnaround

What can SMEs do to improve productivity?

With so much uncertainty still hanging over the economic recovery it is tempting and prudent for SMEs to continue to watch their cash flow and keep a tight rein on spending.
However, there may be some instances where this could be a false economy that will inhibit a future productivity gain.
We have been seeing businesses that are still holding back on upgrading their IT systems or software.
Businesses use IT to make life easier and more efficient and while it makes no sense to try to keep pace with constant IT innovation, equally it can be counter-productive to hold on too long to the point where a system is either very slow or no longer fit for purpose.
A good example is switching to online bookkeeping. This is a case where changing to an online bookkeeping system rather than using an old-fashioned manual method or even a computer package is likely to save both time and money. Not only can the online system be shared with key people or outsourced to a bookkeeper but it can be monitored by your accountant, saving on the time and costs as well as offering scope for improving the quality of reports.
Perhaps you can suggest other examples of processes that could help SMEs to boost productivity?

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

Has 2008 changed the pattern of insolvencies increasing on an upturn?

An increase in insolvencies used to be a reliable signal that the economy was coming out of recession.
Six years after the Great Recession in 2008 we are being told that our economies are growing, the recession is over, SMEs are reporting increasing orders yet there is still no sign of an increase in insolvencies.

So what is going on?

The reason that insolvencies rise in an upturn is because two things happen.
Firstly companies start to get an increase in orders, but unless they manage their cash flow carefully, or have adequate reserves of capital they risk overtrading – essentially not being able to fund the growth.
Secondly, secured creditors generally only call in loans when they think there is a fair chance of recovering their money, therefore during an upturn and in particular when the secured assets increase in value.
The consequence is that when creditors start to demand their money back and a company is overtrading it can’t realistically pay off the loan – the result is insolvency.
So in our view, the recession is not yet over, markets remain jittery, confidence is still uncertain and asset values are falling, hence fewer insolvencies.
Have we simply papered over the cracks?

Business Development & Marketing Finance General Rescue, Restructuring & Recovery Turnaround

Growth? – make hay while the sun shines

With all the uncertainty and market volatility in recent weeks should SMEs still focus on cash so that new opportunities and growth can be funded without over-trading (running out of cash)?
It seems that although many small businesses are reporting increases in orders, they are being cautious about taking risks.
Generally as an economy comes out of recession and orders start to pick up there’s a risk of over-trading, especially where a business has insufficient capital reserves to fund the period between order and payment.
This explains the well-documented rise in insolvencies that characterises the start of an economic recovery. We haven’t seen a rise in insolvencies yet and the feedback from SMEs has been that they are not yet convinced of a stable recovery.
We believe SMEs are taking a realistic view in welcoming increased business, deciding to make hay while the sun shines, but not yet pursuing aggressive growth strategies.
What is your view?

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

Businesses exporting outside Europe – in this climate?

For some time now small businesses have been encouraged to look outside Europe for markets for their goods and services.
Indeed research by UPS found that UK SMEs have been outperforming those in Europe in developing their exports beyond the EU and increasing their turnover.
While the bulk of UK exports are still to the EU, 54% of UK SMEs had exported to other English speaking countries, such as the USA, Canada, Australia and New Zealand.
One could argue that SMEs should be looking even further afield. But how realistic is all this as a recipe for recovery and growth?

Export growth?

Markets across the world are increasingly jittery. There is doubt about whether the Bank of England will now raise interest rates this side of the forthcoming election for fear of destabilising UK recovery.
The 2008 Great Recession was a massive shock to the global economic system and the fear that it caused is nowhere near abated. There is even talk of another major financial meltdown looming in the next couple of years.
The IMF has been sending out dire warnings about global growth for 2015 because of the Eurozone’s ongoing failure to recover.
It is becoming ever clearer that the global financial system is now so interconnected that what happens in one part of the world has an impact on economies, wherever they are on the planet.
What price increasing exports in this atmosphere?

Banks, Lenders & Investors Finance General Rescue, Restructuring & Recovery Turnaround

Banks, bad behaviour and relationships

How would you define a relationship?
For most of us, it would most likely include some form of personal interaction and some clear mutual benefits for those involved.
On this basis, it seems that the banks still don’t get it. While they might talk about wanting a relationship with their customers, we’re hearing that it is still a one-way deal.
At the top level, bank CEOs and senior executives appear to have accepted the need for change, but the message does not appear to have filtered down to middle management. There may be more local managers tasked with taking care of SME customers, but when each has a case load in the hundreds and in some cases thousands, how can they hope to build any meaningful understanding of their customers’ needs?
While the marketing language may have changed it seems the behaviour hasn’t. SME customers are still being treated as ‘cannon fodder’ to whom ‘products’ are sold by a computer.
It seems banks still need to embrace the need for change – or are we speaking to the wrong customers?

Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Brand values are important for SMEs

The perils of being a well-known brand are amply demonstrated as supermarket giant Tesco continues what is turning out to be an “annus horribilis”.
Arguably, however, there could be an element of hubris and complacency that has led to the current situation and even small businesses can benefit from this lesson, as SMEs are normally managing their own brand albeit in a much smaller pond.
Building a reputation for reliability, quality of service, availability and being a good company to deal with can bring significant benefits to any SME. These are all ingredients of a brand.
It helps to build a long term relationship with customers, which relieves the pressure to be constantly searching for new ones and improves the security of the business, and like any strong brand these qualities justify premium prices.
A good example of the benefits of a brand with strong values is the pain relief medication Ibuprofen. Sold under its generic name, a pack of 16 or so Ibuprofen tablets retails for around 30p, but sold as the brand Nurofen the same package fetches over £2.
This logic can apply to a wide range of goods and services but crucially only if it is backed up by an offering that does the job along with all brand values that small businesses often do much better than a larger ones.

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

Getting the price right is all about quality and a personal service

Price and fee setting are thorny issues for SMEs.
Who has not been advised to “stick to your guns” when a client or customer tries to negotiate a lower quote and been assured that they will not lose the customer?
Who has not been told by some guru to “put your prices up” as an indicator that you’re offering a superior service in which you have faith?
Then there are those customers who ask for free or heavily discounted work on the “promise” of further contracts or the loss leader that’s supposed to hook the customer into buying more.
It is easy for the consultant to give advice but how often do they amend it to suit prevailing conditions?
And right now, in most sectors there is an oversupply of most businesses and services and not all the existing businesses will survive.
Those that do will be those businesses that have been wise enough to understand and employ an astute mix of marketing and pricing models that may well include discounting, loss leaders or a range of services at different price points from basic to premium to keep the orders flowing in and the customers happy.
But more than that they will only survive if they can demonstrate quality and a personal service that is the hallmark of many SMEs by comparison with the bigger fish.

Business Development & Marketing Finance General Rescue, Restructuring & Recovery

No magic lantern, just commonsense

This week the successful online e-commerce company Alibaba will make a pitch to investors as it prepares to launch as a public company on the US stock market.
Jack Ma, the founder of the highly profitable 15 year-old company, issued a letter to investors along with the company’s prospectus. In it he described the company as an ecosystem with a long term vision.
The letter contained some striking points. One of them is that shareholders would effectively be third in order of importance in the company’s strategy.
In first place came customers, who for Alibaba are the small businesses using the platform to sell their products and the consumers who buy them. In second were employees. His reasoning is that to give customers what they need the company needs happy, diligent and satisfied employees. Without these two the company cannot fulfil its duty to create long-term value for its shareholders, which is why he put them in the third place.
In last weekend’s Sunday Telegraph Business Review I contributed an article on how small businesses need to prepare for growth and I believe there are lessons in Jack Ma’s letter from which SMEs can learn.
No business can grow unless it is providing what its customers need and, as Jack Ma says, that depends on committed employees. It ought to be commonsense.
These two aspects are central to demonstrating that a company is a viable prospect when it is seeking finance to grow as they will form a significant element for any pre-investment valuation.
If a company cannot demonstrate a demand for whatever it supplies how will it convince lenders that it will be able to repay the money it has borrowed or provide a sustainable return to investors?
I would welcome contributions from others who have similar stories that are aimed at reassuring investors before they part with their money.

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

SME businesses need goals and a plan

As we noted in our last blog more than two thirds of the new jobs created since 2008 are people registering as self employed to set up in business for themselves.
There is as yet no information on why.  It could be that they felt they had no alternative after redundancy, especially if they were older people who calculated that the odds of finding another job were less than favourable. Some may have dreamt of becoming their own boss.  Some may have jumped before they were pushed.
A few will undoubtedly be people with a strong entrepreneurial streak and an innovative product or idea.
One thing all business coaches say is that to run your own business requires passion and commitment, market research, a business plan and sound financial management.
Any plan will include analysis of the market and assessing the competition, without which it is difficult to know if a business can succeed.
Once a plan has been produced, a focus on bringing in business and satisfying customers tends to involve doing more of what works and stopping doing what doesn’t. This needs constant vigilance and regular monitoring to make progress towards goals in the plan.
Revisiting the business plan is more like checking the map to make sure you will eventually get to where you are going. Sometimes when conditions change or opportunities arise you have to fundamentally change your goals and also your plans. There is no strict formula for a plan but having a goal and road map allows you to measure progress towards reaching your goals.
A survey of 1000 SMEs carried out by Bibby Financial Services recently found that one in four of SMEs cited increased competition as their greatest fear, yet all too many of them don’t have any goals and even fewer have analysed their market, let alone produced a plan.
One has to ask, how many of these new self employed businesses really had any idea what they were getting into?

Banks, Lenders & Investors Finance General Insolvency Personal Guarantees Turnaround

Director guarantees should mean cheaper borrowing

Financial institutions, especially banks dealing with small business loans, are often asked for loans by directors of companies that do not have insufficient assets. This places banks in a difficult position because they often want to help their clients but at the same time they can’t take risks with depositors’ money. The result is that banks frequently require directors to give a personal guarantee as security for money borrowed by the company.
If the business is subsequently unable to repay the guaranteed loan then the bank expects to rely on its guarantee. Accordingly guarantors are now asked to seek legal advice before signing a guarantee or at least confirm they have been advised to get advice before signing.
Directors should therefore be mindful of the obligations they may be taking on when seeking business finance and weigh up the pros and cons.
We are, however, aware of clients being told by bank managers that they would never expect to actually call upon the guarantee. This confuses the issue as it begs the question why take a guarantee. However most likely if a guarantee exists, it will normally always be called upon in the event of a default providing the director has sufficient personal assets.
While a bank relationship manager may be uncomfortable asking a client to sign a personal guarantee and often confuse their client by trying to reassure them, the bank’s in-house recovery team won’t have a problem if the a bad debt is passed to them.
Some commentators and many aggrieved directors have tried to turn this into an ethical or moral issue but it is straightforward. Banks need security and they should not be lending money at risk, at least not retail or commercial banks. In turn the reduced risk to the bank should attract a low cost of borrowing to the client.

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

Business rates reform – there is a prospect of SMEs being exempt

It is three months since the BIS (Business, Innovation and Skills) select committee of MPs published its findings on the current system of business rates and called them not fit for purpose and in need of fundamental reform.
Its suggestion was to replace business rates with a sales tax, something the Government has rejected on the grounds that the UK already has a sales tax – VAT.
There have been various suggestions from interested parties about what needs to be done.  The BRC (British Retail Consortium) proposed that small businesses with a rateable value of below £12,000 should be freed from paying the tax, something that would benefit an estimated 100,000 businesses.
Most recently the CBI (Confederation of British Industry) has waded in, calling the current system “outmoded, clunky and regressive”.
It has suggested that there should be more frequent rate reviews, that the tax should be linked to rental values rather than land values and that small businesses should be exempt.
Given that despite the economic recovery many small businesses are still struggling to survive and even fewer are able to grow we argue that the impact on them of business rates is “disproportionate”.
It time the Government grasped the nettle rather than kick the can down the road with a further delay that is expected following the Autumn review.
With support from the BRC and CBI, small businesses and their representative organisations should become proactive by lobbying Ministers and MPs for change, especially given the prospect of being exempt from business rates.

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

An interesting idea to stimulate SME lending

According to the Business Secretary, Vince Cable, bank lending to SMEs is being “suffocated” because the Bank of England is blocking reforms to regulations on the reserves lenders are required to hold.
Under current rules, these have to be higher for business lending than they do for residential mortgages because the former are seen as higher risk than the latter. The BoE also claims that the rules cannot be changed because they are set internationally.
Meanwhile the Government’s business bank has so far lent around £780 million and is experimenting with a scheme to underwrite commercial lending to SMEs with Government funds, welcomed by the BCC (British Chambers of Commerce) who want the business bank “radically scaled up” and strengthened.
While at last there seems to be general agreement that there is a problem with bank lending to small businesses there seems to be little idea what to do about it.
Andrew Haldane, writing in the Telegraph has a suggestion, based on a commission carried out in 1931 that identified structural issues in providing SME lending, which was called the Macmillan gap after the Commission Chair, Hugh Macmillan.
It showed that while large companies tended to have a track record for profit and performance, making it easier to establish their creditworthiness, smaller ones generally do not – hence the gap. He suggests that one way of making it easier to assess SME creditworthiness is to establish a freely available credit register or database of SMEs credit history and revenues.
This would bring together data from credit reference agencies, banks, HMRC records and other government agencies to provide comprehensive information freely accessible to potential lenders such as pension funds, insurance companies and companies supplying trade credit.
Would it work and would it help?  Haldane cites “academic evidence” of considerable benefits.
This would certainly identify leads for turnaround and transformation advisers but will it stimulate lending?

Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

The new parable of the talents


“For to everyone who has will more be given and he will have an abundance. But from the one who has not, even what he has will be taken away.”

This conclusion of the biblical Parable of the Talents (Matthew 25: 14-30) neatly summarises the results of unrestrained and unregulated neoliberal free market capitalism, as propounded by Milton Friedman (Chicago School of Economics), the model by which business and economies have  been run since the 1980s.

But even before the global financial crisis of 2008 (and more so since) economists and academics like Paul Krugman (End this Depression Now), Jo Stiglitz (The Price of Inequality) and Will Hutton (Them and Us) were questioning the model and the latest to wade in has been Thomas Piketty with his dubiously-praised book Capital in the 21st Century.

Piketty’s book claims to provide evidence over two centuries of the ebb and flow of extreme inequality of wealth, leading to his thesis that wealth grows faster than economic output. His conclusion is to heavily tax the wealth creators which proposals have been embraced by those politicians looking to justify tax increases.

Capitalism itself has come under fire since 2008 largely because it has proved such a ruthless and unforgiving system for so many people.  But, it is also argued, like democracy that it is the least worst system for providing the economic growth needed to afford acceptable living standards for the most people.

But is the problem the system itself or its unregulated consequences? And how does any of this matter to the myriad small businesses that are the backbone of the UK economy and its hope for the future?

We would argue that the essential ingredients of a healthy capitalist economy are demand, ideas, investment, resources and leadership – all essentials for running a successful business.

What is a problem, is the outcome that has so badly affected so many people and businesses. In particular the notion of ‘too big to fail’ where the capitalist model of accepting failure was undermined by the political consequences.

This was addressed at a recent conference in London called Inclusive Capitalism, where among others Mark Carney, Governor of the Bank of England, argued for a return to high ethical standards in banking and for recreating fair and effective markets.

Sir Charlie Mayfield, chairman of the John Lewis Partnership, too, defended capitalism as a force for good and for social mobility, but proposed that it required rethinking business conduct and education, encouraging wider ownership  among employees and investing in employee training and development, all of which imply a shift from short term profit-taking or rent seeking to longer term thinking and investment.

All of which, too, is something any small business owner could have told them.

As for Piketty’s claims, at least they are now being challenged by the Financial Times. Increasing taxes on the wealth creators have not increased revenue collection, nor have such policies promoted wealth creation. 

Was St Matthew the first capitalist?

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

Update on Interest Rate Swaps missold to SMEs


The May deadline for banks to compensate thousands of small businesses for the misselling of Interest Rate Swaps (IRS) has now past and banks would seem to want everyone believe that they have resolved matters within the deadline.

But campaigners Bully Banks say that many SMEs will miss out on compensation arguing that banks have rejected most claims for consequential loss.

The compensation scheme imposed by the Financial Conduct Authority (FCA) on the banks allowed for basic redress – a refund for excessive interest paid plus 8% interest. However, affected businesses could also claim for such things as lost profit and legal expenses (consequential loss).

Bully Banks Chairman Jeremy Roe was quoted recently as saying: “I don’t know of any business that has successfully claimed for consequential loss and received reasonable compensation from their bank”.

Meanwhile the British Bankers’ Association claims that banks have met their obligations by informing businesses of the IRS compensation they may be owed by May’s end. The claims for consequential loss are being dealt with case by case but would seem to be being dragged out.

It is three years since Bully Banks first began their campaign into IRS misspelling.  That is a long time for a small business to wait for recompense. 

But for many it seems that the waiting is still not over and the outcome remains uncertain.  In the meantime many such businesses would be well advised to prepare for the worst by revising their business plans with the help of a turnaround adviser rather than wait in hope for a big payout.

Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Wednesday will be an interesting day for small businesses


Results of a survey into lending to small businesses are due to be published tomorrow (Wednesday) and are expected to prove an eye-opener.

The six-month survey, carried out by the British Chambers of Commerce (BCC) and Federation of Small Businesses (FSB) at the behest of Chancellor George Osborne, is widely thought to show that small businesses continue to feel excluded by the banks from lending, despite all the exhortations of the Chancellor and Treasury.

Bank of England figures have, in any case, already indicated that business lending continued to fall in the three months to February 2014 down by £500 million, following a reduction of £3.3 billion in the preceding three months.

Publication of the survey will coincide with the launch of a joint BCC/FSB website called Business Banking Insight (BBI), which is expected to allow small businesses to rate their banks’ performance on services and on understanding their businesses.

It is expected to give small businesses the information they need to compare offerings by banks and by alternative finance providers.

While it may be, as reported in the weekend’s Business Telegraph, that the Treasury will urge banks to increase competition in lending to small businesses, is it likely that bank lending will rise, given the lack of security for new loans and regulators’ requirements for higher capital reserves?

The matter for real concern should be existing loans and the impact on borrowers when interest rates rise.

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.

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

From little acorns……..


Our regular readers will know that we continue to liberally apply a pinch of salt to reports on the solidity of the much-heralded economic recovery for several reasons.

Firstly, most national news emanates from London and there is still a great gulf between the capital and the rest of the country. Much of London’s optimism is down to the enormous rise in the value of property which has contributed to London home owners feeling wealthier.

Secondly, a little-noticed report in late April in the Daily Telegraph noted the latest data from the Bank of England’s quarterly report showing that business lending, especially to smaller and medium-sized businesses, has continued to decline for the sixth successive quarter.

Thirdly, there is the evidence of our own eyes and ears. We are hearing that small and micro businesses are still facing tough trading conditions. Most are having to work hard for the money they make as well as dealing with continued uncertainty and experiencing the frustration of a long wait for the decision on every contract they pitch for.

Finally, the greatest impediment to recovery and growth remains a fear of interest rates. While they will inevitably rise, the concerns are threefold: 1. the ability to service them, 2. the impact on consumer spending and 3. whether banks and other secured lenders will call in their loans like they have in the recovery phase after previous recessions.

Interestingly, David Boyle, writing in the Business Guardian this week points out that talk of rebalancing the economy (from London to the regions and from financial to manufacturing sectors) seems to have morphed into little more than reducing the trade deficit.

He argues that far more attention needs to be paid to putting money into what he calls “ultra-micro-projects” perhaps by using existing resources such as waste land, unoccupied people and buildings for innovative small businesses that would bring money into the community.

It may not be glamorous, nor is it attractive to the policy makers, but given that the so-called recovery is taking place in a situation where there is still a large amount of business and consumer debt perhaps his idea has some merit?

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

Further thoughts on small business definitions


If, as is argued, Micro businesses are unable to take advantage of Government initiatives for small businesses (the S in SME) what about these further two sub divisions?

There are two other types of business that presumably currently fall into the “S” category of SME – the Lifestyle business and the Sole Trader.

Broadly the Lifestyle business can be described as one where its owner(s) deliberately run it so as to allow them to support a lifestyle. They need a satisfactory level of profit but tend not to focus on growth beyond a certain size. Typical examples would be those who want to prioritise their time with children, or those who want to work from home. Such businesses might be based on providing services time can be self-managed such as designers or consultants, or using creative skills to write or make goods for sale. The internet has made many such businesses possible.

The Sole Trader, on the other hand, is a definition used by HMRC to cover anyone who is self-employed. They may have a particular trade or skill they can sell, such as carpentry, plumbing, painting and decorating, accountancy, book keeping and so on, and some may have set up independently as a result of redundancy though others will have made a conscious decision to become independent.

Given time, effort and ambition this second group can potentially grow into a much larger business employing people. There is likely to come a time when the Sole Trader needs support, mentoring and funding to achieve growth.

Plainly, though, to be of genuine, practical help any Government support for the Sole Trader, the Micro Business with fewer than 10 employees and the Small Business, with between 10 and 50 employees should be tailored to each specific group’s needs.

While economic recovery is said to depend on the growth of small businesses what chance is there of Government understanding or adopting this more nuanced and necessary approach to achieve this?

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

Are SMEs really MSMEs and what is the squeezed Middle?


We all use it without really thinking and assume we know what it means.

The acronym SME provokes puzzlement in some quarters and ire in others, according to Daily Telegraph business writer  Michael Hayman, who quotes King of Shaves founder Will King: “Get rid of this casual piece of profanity…It needs to be removed from the Oxford English Dictionary.”

So what is the problem? 

SME is short for Small and Medium Sized Enterprises and that, according to CBI director general John Cridland, means the M in the middle is a “forgotten army”, the middle-sized businesses on which the economy is relying for growth.

But it’s actually a bit more complicated than that since no-one agrees on the definition of small.

The UK and the EU use the same definitions for businesses, based on number of employees and turnover – Micro, Small and Medium – which actually would give us the acronym MSME!

Micro Businesses are those with fewer than 10 employees and turnover under £2 million, Small Businesses consists of fewer than 50 employees / turnover under £10 million and a Medium Business has fewer than 250 employees / turnover under £50 million.

It is argued that 95% of UK companies qualify as Micro Businesses. This has led to the setting up of a parliamentary group, the All-Party Parliamentary Group (APPG) for Micro Businesses, chaired by Anne Marie Morris, Conservative MP for Newton Abbot.

The CBI has calculated that middle-sized companies contain between £20billion and £50billion of unrealised economic output, and are best placed, unlike their smaller brethren, to take advantage of export opportunities in the emerging markets of the world.

The argument is that by lumping them all together the M, Medium, businesses in SMEs are neglected and don’t get the support they deserve.  Equally the other M, Micro Businesses, lose out by being lumped in with Small but actually can’t take advantage of government support aimed at the Small.

What do you think? Do you see yourself as Micro, Small or Medium?  Do you feel neglected? And should we replace SME with MSME?

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

What help was the budget to SMEs?


A post-budget vote in Kent by 100 business people revealed that 80% of them were more confident about the prospects for the economy in the South East than at this time last year.

But looked at closely, there was very little in the budget that was likely to make things any easier for the UK’s SMEs, which account for more than half our output and two thirds of all employment.

Admittedly, direct lending from government to UK businesses to promote exports was doubled to £3bn and interest rates on that lending cut by a third and business rate discounts and enhanced capital allowances in enterprise zones were extended for three years. But how many SMEs will benefit from these measures?

Admittedly also, some small builders may benefit from the extension to Help to Buy until 2020 and the “support” for the building of more than 200,000 new homes.

But there was not a word about the review of business rates that had been pressed for by so many businesses, not only High Street Retailers, in the days leading up to the Budget statement, nor about the previously oft-repeated promises to reduce red tape.

Given that the Chancellor himself has conceded that economic recovery is built on very fragile foundations is such an increase in confidence on the part of the businesses of Kent a case of too much too soon?

Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Can SMEs afford to bid for public sector contracts?


By coincidence on the same day that the British Chambers of Commerce (BCC) announced revised growth forecasts, predicting that the economy would overtake its pre-2008 crisis peak in the second quarter of 2014 rather than in 2016, an SME announced that it was pulling out of further involvement in a valuable contract with the Ministry of Justice (MoJ).

Sara Murray, founder of Aylesbury technology company Buddi, said in an interview with the Daily Telegraph that tendering for the contract to supply software and tags for tracking 24,000 offenders had eaten up nearly two years of the company’s time and cost £2 million to assemble the documentation required for the bid. The paperwork filled 13 large boxes delivered in two taxis.  It was the only SME to win a part of the 4-Lot contract.

Then came further MoJ requests for “thousands of pages of information” to be given to other bidders and requests to share Buddi’s intellectual property with other bidders.  Buddi also had to deal with constantly changing specifications until finally the demand that Buddi would do further development work free of charge. This was the final straw that triggered Ms Murray’s decision to withdraw from the tender process.

In 2005 Buddi was a start-up. When it began working on the bid it had 25 staff. While preparing the tender for this contract with the MoJ it was servicing existing contracts both nationally and internationally and focused on growth. It now employs 40 people.

Ms Murray said the company has tendered for and won work overseas and found their processes far faster and far less complex.  She sits on a number of Government advisory panels and is passionate about getting SMEs working with Government.

Government claims it wants to help SMEs grow, it promises to remove red tape, and it wants more SMEs to work with them. It seems there’s a long way to go.

If the BCC’s prediction is proved accurate, given Buddi’s experience one has to ask whether all this growth will be confined to the “usual big-company suspects”.

Are you aware of SMEs tendering for public sector contracts? Is there one bit of red tape above all others that you would like to see removed?

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

Bully Banks fight back on behalf of SMEs


The Treasury Select Committee (TSC) has begun investigating the banks’ treatment of SMEs, covering everything from lack of financing to bullying.

The investigation follows media pressure and a number of reports, including the Tomlinson Report into complaints about RBS, and details relating to the Financial Conduct Authority’s investigation into mis-selling of Interest Rate Swaps (IRS) to SMEs.

Arguably, though, the pressure for a thorough investigation began in December 2011, with the formation of Bully Banks, an independent organisation to lobby for investigation and action on the IRS scandal. Membership of Bully Banks has now reached more than 2000 and all are SMEs.

Bully Banks ( has campaigned for action to help SMEs recover their money, but this year it widened its campaigning following Tomlinson and the emergence of another potential mis-selling scandal affecting banks’ use of the Enterprise Finance Guarantee Scheme (EFG),  which we was covered in a recent blog.

The investigation by the TSC would suggest the group may have achieved its objective, at least partially.

The question is whether the TSC has the teeth to do what Bully Banks wants and if it does find evidence of bank mistreatment of SMEs, what recommendations would you want to see and what likelihood is there of the banks actually taking notice or acting?

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

Are you a collaborator?


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

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

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

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

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

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

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

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 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.

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.

Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Flavour of the month – MINT


It started with the BRICs, then came the PIGS and now it’s the MINTs.

What do they all have in common besides being acronyms?  They’re all groups of countries that have at various times been grouped together as either economies that are tipped to grow, and therefore offer good potential for UK firms wanting to expand and export their goods and services, – or possibly not, in the case of the PIGS (Portugal, Ireland, Greece and Spain) highlighted as problem economies at the height of the global financial crisis.

It seems the BRICs (Brazil, Russia, India and China) are old news.  The potential new kids on the block are the MINTs (Mexico, Indonesia, Nigeria and Turkey).

Although they are widely disparate both geographically and in terms of infrastructure they are being seen as emerging economies with growing populations of young people.

We’ve said before that SMEs in the UK need to become more innovative when researching markets for their products and services and to not discount opportunities for growth abroad.

We’re not pretending it will be easy so you need to do your homework.  If you can, it’s worth actually visiting the country to get a feel for how things work and what opportunities might exist.

The Government’s UKTI (UK Trade and Investment) is a good place to start.  It offers support and experts to help you and regularly organises business delegations to countries around the world.

Fancy a MINT anyone?

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

It’s all about getting the balance right if SMEs want to grow