Fundraising made simple…..

Tinchy Stryder, who is apparently something big in the pop world these days and therefore a suitable role model, has been advising young people to invest and save wisely. I think this is a great initiative, and personally believe that lessons in business and finance should be compulsory in all schools from as early an age as possible (as apparently does Ed Balls). However, what particularly struck me when reading about this, is the fact that he partially financed his debut album by selling clothes.

In a world where everybody from pop stars to business people seem to be looking for somebody else to fund their dream, it is a timely reminder that the best way to generate cash to finance investment is to sell something at a profit and then make sure you collect the money that is due to you.

There are countless stories of entrepreneurs who have held down two or three jobs to raise the necessary funds to finance their dream and then have “bootstrapped” (i.e. used funds generated from their own business operations) their way to fame and fortune. The Beermat entrepreneur, Mike Southon, is a big fan of this approach, and it certainly saves the time and hassle of trying to find, and negotiate with, potential investors. Such an approach will require sound and disciplined financial management, but it does mean that you will have more control over your own destiny than if you allowed external involvement in your business.

I know this sounds glib, and yes of course some businesses do require significant development capital which can only be acquired through outside investors. However, I do think that some entrepreneurs spend too much time obsessing about how to raise money and lose sight of the fact that they ought to be thinking about how they should actually be making money.

Business is not meant to be easy, but it is simple, and perhaps business people of all ages could benefit from learning from Tinchy Stryder’s approach to financing their dreams.

Taxing Times.....

Nobody likes paying tax. There it is. A bald statement. Oh people will tell opinion pollsters that they would happily pay more tax to improve services that they value, but in reality anybody fighting an election based on a message that more tax is a good thing is not likely to be holding the keys to No.10 Downing Street any time soon.

Yet like it or not, and regardless of who wins the next election, we are all likely to end up paying a lot more tax. National Insurance is due to go up in April 2011. It is highly likely that VAT will increase. There is also talk that Capital Gains Tax (CGT) will have to go up as well due to the disparity between the new higher rates of tax and the current 18% level of CGT. This will no doubt fall disproportionately on entrepreneurs, and provoke an outcry similar to that which followed the curtailment of the 10% taper relief for business assets a couple of years ago.

The Tax Advice industry is currently in overdrive finding ways of mitigating the impact on their clients of the new 50% rate which is being introduced from April 2010. And yet the retrospective nature of a recent court case relating to the reclassification of a long time “non dom” has caused many advisors to wonder whether even giving solid advice based on how tax law is currently being applied will be of any use if the Revenue decides that its own interpretation at the time was wrong and seeks to go back and correct matters.

It would appear that even with frighteningly detailed tax legislation in place, court cases will turn on specific facts, and the current HMRC view of those facts, and there is no guarantee that this view will be consistent.

HMRC are effectively operating as if there is a general anti avoidance provision in place, having cleverly blurred the boundaries between legitimate and legal tax avoidance and illegal tax evasion. Not only are they challenging the more imaginative schemes that have been specifically devised to avoid tax, but they are also looking to attack what was hitherto regarded as sensible tax planning.

Added to all this is the argument that the Directors’ Duties under the Companies Act 2006 require them to minimise their tax liabilities where possible which will make taxation issues even more of a burden for company directors and owners to deal with.

The UK already has a horrendously complex tax code with pitfalls galore even for those who do their very best to comply. Throw in the impact of uncertainty generated by HMRC’s attacks on tax avoidance, which could then potentially be applied retrospectively, and you are setting the scene for an era in which the tax lawyers are likely to be the main winners.

Taxing times indeed……

Work? Well if you insist…….

A couple of interesting reports caught the eye this week on the future of work and employment.
The first from the New Economics Foundation suggested that the working week should be cut to 21 hours , saying that this would help boost the economy and improve quality of life by easing unemployment and overwork. They admitted that people would earn less, but said that they would have more time to carry out worthy tasks.

I am sure most entrepreneurs when they heard about the former, initially though “21 hour days – that seems about right” but no, the authors really were suggesting that 21 hour weeks should become the norm, with a few additional hours no doubt to carry out some worthy tasks.
The second by Friends Provident suggested that by 2020 we would have an elite group of knowledge workers who, due to the their scarcity, would be able to demand higher salaries, better benefits and a greater degree of professional fulfilment. However, we would also have a growing underclass who would face poor prospects and limited expectations, which could leave UK plc facing a serious skills shortage.

Clearly working life is changing for many of us, and it is interesting to note that more and more young people are looking to control their own destinies, and expressing a desire to set up their own businesses. However the skills question keeps cropping up, and I suspect that personal development will need to remain a priority however many hours we work a week.

Given the above two reports, it is interesting that much of the comment surrounding the unemployment statistics for January focussed on the issue of underemployment, and how measures such as part time working had effectively kept the headline numbers down. Underemployment is one of the big issues of this recession, and many of the statistics quoted do not include those people who are setting up their own business or working as freelancers. Many of these people are working very hard to establish and market their business, but are underemployed in terms of actually earning real money.

All this reflects the changing nature of work and employment over the last decade, and many of the trends, such as flexible working and people starting their own businesses, will be accelerated by the current economic downturn.

Very exciting stuff of course, but what this move away from traditional employment will mean for the future tax take and our yawning public sector funding deficit is another issue, and no doubt the subject of another blog.

Three sets of books? Well that makes everything clear then…….

I recently read an recent article in Accountancy Age (no please keep reading, it’s not going to be that bad), which railed against the proposals made last year by the Accounting Standards Board concerning the future of financial reporting in the UK . In essence big companies will need to use the full set of International Financial Reporting Standards (IFRS), smaller companies will use IFRS “lite”, and the smallest will continue use the Financial Reporting Standard for Smaller Entities (FRSSE). It is hoped that this will promote consistency in financial reporting and enhance global comparability and understanding of the numbers presented.

Still with me? Good, because here is the bit that ought to concern you.

There are going to be three ways of presenting your accounts, all of which involve theoretical approximations of certain economic situations e.g. financial derivatives, share option schemes, pension, most of which are not relevant to SMEs, and arguably none of which really explain how a business is performing, and what the end cash is likely to be. The last comment is pertinent because, as we all know, the value of any business is based on its cash flows to investors.

This all reminds me of that old story of a certain faraway country (OK you’re not that far away, are you Italy?) where each business used to keep three sets of books. A first set was given to the tax authorities, who would normally return them after collapsing on the floor laughing. They were then given a second more acceptable set. The third set, of course, were the real books used by the people that actually owned and managed the company to run the business.

It seems to be we are all being driven in the same direction as regards company reporting, although this time it is not the taxman being taken for a ride (not intentionally anyway), but anybody who wants to use their accounts to manage their businesses efficiently and effectively, and explain to investors what is really happening.

We will have a set of books which constitute the statutory accounts of the business, which are legally required and used by the wider investor community based on a combination of IFRS and FRSSE. We will then have internal management accounts with key performance indicators (KPI’s) reflecting whichever agenda the incumbent management have chosen to make them look good. Finally, we will have the cash focused set of books which really determine business success or survival, but will probably get hidden from the people who really matter.

As the accounting profession rushes to place emphasis on the former, and in house finance functions focus on management reporting, it does seem that we are all losing sight of what really makes the business live or die.

It is surely our responsibility as finance professionals to report financial issues in as clear and unambiguous way as possible. If we do not then frankly we are not doing our job properly. The message from company owners and managers needs to be clear. Show us where the cash has come from and where it is ultimately heading. Then we can know if the business is worth continuing with or not, and whether you, Finance Professional, are actually adding value.

Britain’s got (financial) talent….

Businesses fail because of bad financial management. And we are not just talking about businesses that go bankrupt here. We are also referring to businesses that do not make as much money as they could have done. Potential world beaters that get overtaken by seemingly less well resourced businesses.

And yet if you look at most business plans or proposals, while they will provide full details of the sales, marketing, creative and operational talents within the team, there is often very little reference to the finance talent that will be required to manage the money, and provide the financial returns that are faithfully promised to potential investors and finance providers.

In the heady atmosphere of developing an exciting business idea, it seems that financial management is almost an afterthought (as opposed to finance, which of course is seen as vitally important, especially when it is provided by somebody else).

I can recall all too many instances where financial management skills have been reluctantly brought in at the last minute in an attempt to avert a catastrophe. I say reluctantly, as the management still seems to want to haggle over the cost, as if you are a burden rather than the one thing that stands between them and financial oblivion. And yet this is the same management that has probably splashed out vast sums on the other talents in the team (and themselves) with almost carefree abandon. That is of course until the money has almost run out.

So entrepreneurs, if you want the money men to be interested in you, and achieve the best result for yourself, you need to make sure your have somebody in your team at a very early stage interested in looking after their money. Britain really does have financial talent – make sure you use it and value it.

It’s All Over Now….Or Maybe Not….

It’s official – we are out of recession , albeit not very convincingly, with growth of only 0.1%. This is of course subject to revision because the Office For National Statistics (ONS) have so far only received 40% of the information that is required to make the necessary calculations. Therefore it could go up (hooray!), or it could go down (boo!), which then means the recession is not over after all.

I am not an economist but growth of 0.1% doesn’t appear to be particularly impressive, particularly given all of the stimulus that has taken place so far, and the fact that we have had Christmas and a pre-VAT increase spending splurge as well.

Anyway time will tell as to where we are statistically, but in the real world there remains a lot of uncertainty, which is not going to go away whatever the figures say.

However something else recently caught my eye, which is a little more concerning, and probably has a greater bearing on our long term growth prospects. According to research from Manchester’s Centre for Research in Socio-Cultural Change (CRESC) the expansion of public sector activities has been the main engine of growth in the economy since 1998, and has largely masked the decline of the private sector .

Quoting from the abstract of their report, their argument is that “the UK has an undisclosed model of using publicly supported employment to cover the continuing failure of the private sector to generate and distribute welfare through job creation”. In essence, according to CRESC, even the increase in private sector jobs over the past twelve years has primarily been the result of public sector activities.

Strong stuff but is it fair? We are all aware of the continued jibes about the growth in public sector “non jobs” over the past few years, but the thought that all those “productive” private sector jobs owe their existence to the state as well takes some getting used to.

Perhaps it is time for the “entrepreneurial” private sector to fight back and show how it can efficiently and effectively “generate and distribute welfare through job creation”. The country certainly needs it to happen.

Cadbury and some flakey logic…..

“We can run this better without you!” “No you can’t!” “You want us on the cheap!” “It’s a fair offer!” “Isn’t Isn’t Isn’t!” “Is, Is, Is!” “Oh OK, we’ll pay a bit more then.” “Oh fine we’ll accept.”

And thus another “hard fought” takeover battle limps to its predictable conclusion. A victory for market driven capitalism and an injection of new ideas and energy into the UK economy, or a sad case of yet another key British company being sold into foreign ownership with the inevitable consequences for jobs and investment.

I will leave that for you, dear reader, to decide, although the opposing viewpoints are well presented by John Stepek of Money Week, and Alex Brummer of the Daily Mail.

What I would say is that whole Cadbury issue has been a sideshow, and a symptom of the post war British focus on job preservation over job creation. Of Cadbury’s 45,000 odd employees, less than 5,000 were based in the UK. Whoever had owned Cadbury, it is unlikely that this number would have increased significantly, and it is more than likely that it would have declined over time.

The UK needs to create over a million new jobs if it is to get back to the peak employment levels of 2007-2008. These new jobs are not going to come from businesses like Cadbury. Aside from the public sector (which for obvious reasons is not going to go on a recruiting spree anytime soon), the only way that we are going to get what is in effect an exponential increase in jobs is by developing high growth entrepreneurial companies providing goods and services to growth markets.

To be fair, the government often makes the right noises about creating the right environment for such businesses, but sadly as it is easier to regulate and dabble in showcase schemes, than create a cultural change, that is what tends to happen.

However, we have to accept that the economic conditions of the noughties are unlikely to return, and that if we want to get back to the levels of confidence and prosperity that we enjoyed during that period, then we need a business culture where concerns about takeover battles such as Cadbury take second place to the real issues surrounding job and wealth creation.


Antony Doggwiler

I got the Haçienda business blues….

Having ploughed through a number of worthy, if slightly dull, business books in my time it was quite refreshing find one that combined business with another one of my favourite subjects, music.

OK, “The Haçienda – How Not To Run A Club” by former Joy Division and New Order bassist Peter Hook probably wasn’t intended to be a business book, but as it covers the rise and fall of a business venture, including issues such as personnel, management, marketing, finance and internal controls, it does as good a job as any that I have read recently.

I can hear you all saying now “Oh well, it was a business run by rock stars, no wonder it failed. Obviously no planning or review processes or proper management”. Well, no actually, what the book reveals is that they did have regular management meetings, they did prepare accounts and forecasts, and they did do their best to get the right people.

Indeed Peter Hook comes across as fairly switched on in terms of the shortcomings of the business, perhaps not unreasonably so, given that he, as a member of New Order was unwittingly bankrolling the whole thing. Sadly the same could not be said for some of his fellow directors, including the late and very lamented Tony Wilson, whose entrepreneurial zeal created the iconic Factory Records empire, and it was their shortcomings in cost control and cash flow management, along with some external factors such as drugs and crime, which eventually sunk the club.

Yes it was the fact that I consider Joy Division to be the best group ever to emerge from Manchester (it’s a generational thing – other people will cite The Hollies or 10cc or The Smiths or The Stone Roses or Oasis – no doubt Delphic who have been placed third in the list of the BBC’s Sound Of 2010 artists will be somebody’s choice in the future) that drew me to the book in the first place, but given that the history of the modern music business has many excellent examples of entrepreneurship, it was a valuable business case study in its own right.
Meanwhile Peter Hook is clearly a glutton for punishment – he has just announced that he is opening a new live music venue at the old offices of Factory Records in Manchester. He says it will differ from the Haçienda, and he aims to make money this time. Right. Well good luck with that one then Pete….

2010 and all that

So what will 2010 mean for business? Yesterday, in the first day of trading this year, the London stock market moved strongly up with the FTSE reaching 5,500. This buoyant mood was apparently driven by new optimism about the strength of the economic recovery, which seemed to be backed up by a number of positive economic indicators. Two examples of this were manufacturing activity, which accelerated in December, and unemployment, which is now forecast by the Chartered Institute of Personnel and Development to peak at under 3 million. Even CFOs appear to be in a confident mood. Then yesterday came the news that John Lewis and Next had achieved impressive trading performances over the Christmas period.

Anything that creates a “feel good” factor and improves business confidence can only be good for business prospects. However this optimism has to be tempered by the opening salvos (for this year at any rate) in what is likely to be a very long drawn out election campaign, with all the uncertainty that brings. Whatever politicians might promise, and whoever wins, there is going to be an unsustainable gap between government income and expenditure, which means tax increases and spending cuts are inevitable. Even the star retail performers above are preaching caution in their outlook for 2010, something which the disappointing figures from Marks and Spencer seems to bear out.

We remain of the view that businesses will not be able to be rely on economic recovery to achieve better results in 2010, and will need to put in place their own plans and initiatives if they are to move forward. However, good news can only help, so let’s keep looking for it and highlighting it wherever we can.

Of course we are lending! Oh no you’re not!

Like the heading? Well it is Panto time of course (ours went very well since you ask) and it is nice to be seasonal occasionally, even if at times there is not much to smile about.

One area that is definitely causing frowns to form in a number of places is the subject of bank lending. “Banks must lend more” cry politicians and business organisations. “We want to lend and we are lending” say the banks. “Oh no you are not”, comes back the reply (see, this Panto lark is catching). And so the circle of claim and counter claim goes on.

So what is the truth? I recently went to a Surrey Chamber of Commerce event, where four representatives from each of the main high street banks braved the local professional services community for an enjoyable question and answer session. What became clear during the discussions was that there was a definite flight to quality, and businesses boasting good management teams, strong security and organic growth potential in attractive sectors were the ones they were looking to develop long term relationships with. There was an admission that there was limited appetite at present for smaller deals.

Although cash flow based lending was had been substantially reduced, banks were now looking to ensure they understood the cash flows in the business. There was a definite move away from traditional loans and overdrafts towards more asset based lending products, such as invoice finance. Covenants would be tighter, and these would be regularly monitored. They claimed that they had used the recession to get a lot closer to their clients.

The banks emphasised that they did want to lend, as that is their business. However they were finding that many of their clients were reluctant to borrow, even if offered a good opportunity, preferring where possible to pay down debt. Much of their recent “new” lending activity has often been refinancing and restructuring. However they said that the new Enterprise Finance Guarantee Scheme (EFG) was being used more widely than its predecessor, the Small Firms Loan Guarantee Scheme (SFLG).

On the thorny issue of pricing, they said that it was inevitable that spreads would increase, particularly compared to the current low Bank of England base rate, not least because the banks’ own funding costs were higher than this. Other factors currently influencing pricing were scarcities caused by the withdrawal of many foreign banks from the UK market, regulatory requirements, such as Basle II, and more focus on risk based pricing models.

The banks have been at pains to emphasise that their lending criteria have not changed and that they remain open for business. Anecdotal evidence however suggests that it is still extremely difficult to get money out of a bank for anything other than a “sure thing”.

This is not a “bash the bankers" piece as, in the main, the banks have been much more supportive of businesses battling the recession than they have been given credit for. Also, we probably don’t want to go back to the “cash machine” mentality that existed in those halcyon pre credit crunch days. However a little more pragmatism in bank lending in the current climate would be nice.


Antony Doggwiler
ajd@orchardgrowth.com

Breakfast with Bankers

We went off to a breakfast with Clydesdale Bank in Richmond last week to hear the views of Tom Vosa, who is the National Australia Banking (NAB) Group's Head of Market Economics, Europe. As NAB is one of the few remaining AA rated banks in the world, clearly they have been doing some things right, and it was a good opportunity to hear what one of their senior economists had to say, as well as renew acquaintances with our Clydesdale contacts, and meet other local business people.

Tom has a refreshing approach to all matters economic, and it is testimony to his communication skills that not only did a 72 slide presentation packed with detailed economic statistics and analysis seem to fly by, but we were all able to leave the room fully understanding what his views were for the economy in 2010 and beyond, and how they might affect our businesses and those of our clients.

In essence he believed that the recovery in 2010 would be patchy and would most likely resemble a W in shape than any of the other letters or symbols that have bandied about. While each quarter would show some growth, it would not feel like a recovery. There was still a significant wholesale funding gap, which along with the regulatory tightening that was taking place, would continue to limit the availability of finance. Unemployment and earnings would hold back any real increase in consumer spending, and the need to close the gap in the public sector deficit, through spending cuts and tax increases, would also be a dampener on recovery. Nonetheless, there would be a recovery in 2010, mainly led by the public sector activities currently in force, with the real economy taking up the slack in 2011.

In short the deepest recession since the 1930s, would be followed by the weakest of recoveries. London itself would remain the engine room for national recovery, not least because of the Olympics in 2012, although as with most Olympic cities, there will be a negative reaction in the following year.

Clydesdale very kindly makes available much of its research, which you can look at by clicking here . However, the presentation reinforced our view that businesses will have to create their own recovery stories rather than wait for any pick up in the economy.

The wonder of a Woolworths administration – part three

Further to our recent blog on the challenges facing insolvency practitioners (ISPs) in the current business climate, it now seems that the corporate insolvency market is to be the subject of an Office of Fair Trading (OFT) enquiry .

Some of you will find it hard to have any sympathy for these under fire ISPs, reasoning that as they must be so rushed off their feet at present, a squeeze on their fees would not seem out of order. However it is not all sweetness and light in the world of insolvency. Yes, there may be rich pickings at the top end of the scale, which deserve to be scrutinised (Lehman Brothers anybody?) but at the lower end the picture is much less rosy. Due to the reluctance of the banks and HMRC, the two organisations most likely to put a business into insolvency, to pull the plug on businesses, ISPs, while busy, are not that busy.

Also, as so many businesses now operate on a virtual basis, there are very few, if any, realisable assets available. These barely cover the costs of insolvency never mind leave anything left to pay out to creditors.

I still have my doubts about the way the Woolworths administration was handled, but somebody has to clear up the mess that poorly managed businesses leave behind, and in that regard the insolvency profession in general still does a pretty good job.

Antony Doggwiler
ajd@orchardgrowth.com

That’s football isn’t it?

Thierry Henry is a cheat. A fantastic footballer, and for all I know a pleasant and charming individual, but on the evidence of this week’s World Cup qualifying play off second leg match in Paris between France and the Republic of Ireland a cheat.

Football and sport are often used as metaphors for business, mainly in terms of teamwork and people management. However there is also a belief that the spirit in which any game is played is as important as the skill level, and this is another ethos that can be applied to business, as in other walks of life.

There is a way of doing things that is honourable and that does not involve using an unfair advantage to get ahead. You can of course have endless debates as to what is fair or not, but deep down most of us know what is right and what is wrong in business.

Listening to Ronnie Whelan and Alex McLeish two experienced professional football people who were on Sky Sports after the game, both said that while it was clearly heartbreaking for the Irish team, they understood why Henry had done what he’d done, and therefore the Irish had to accept it and move on. “That’s football” seemed to be their message, to which the only possible reply is “Well it damn well shouldn’t be!”

Antony Doggwiler
ajd@orchardgrowth.com

The wonder of a Woolworths administration – part two

Rumblings persist concerning the way that the administration of Woolworths was handled, something that we raised in our blog back in December 2008. Indeed Woolworth’s former management have now added their voices to those who believe that more efforts could have been made by the administrators, Deloittes, to keep the giant store group afloat questioning whether there was a conflict of interest in their provision of advice to the company’s banking syndicate prior to their appointment as administrators. Not surprisingly Deloittes have robustly defended their actions, pointing out that the business simply ran out of money, and that they had been called in with the management’s blessing.

Nobody is pretending that Woolworths was the best run company in the world. However the negative impact of its closure on many high streets up and down the country, and the fact that newly established imitators such as Alworths and Wellworths have seemingly thrived, indicate that the general public placed more value on Woolworths than the financial community apparently did.

With an upsurge in insolvencies expected in 2010, insolvency practitioners will face even more challenges in deciding how terminal the decline of such businesses is, and how far they can go in keeping them alive, whilst not being seen to reward poor management. I wish them all the luck in the world – they are going to need it.


Antony Doggwiler
ajd@orchardgrowth.com

Non-execs – pain without the gain?

One of the biggest questions to emerge from the current banking crisis is what were the non executive directors doing while top banking executives were running their companies into the ground. Indeed this has been a question asked after a number of corporate failures in the past 10 years, such as Enron and Worldcom.

Some of the arguments advanced as to why these non execs were so ineffective in preventing what occurred include lack of accountability, insufficient knowledge of the businesses they were directors of, the fact that they were not selected from a wide enough pool of candidates, and the implication that their high levels of remuneration had compromised their independence.

This view on payment levels was expressed forcefully in last Sunday’s Mail on Sunday. And yet, when one takes into account the risks associated with being a director, the time and effort required to do the job in a way that discharges the legal duties of a director as well as satisfies the requirements of external stakeholders, and the knowledge and experience required to carry out the role properly, the question moves towards not whether non-execs are paid too much but are they actually paid enough to ensure that the right calibre of individual undertakes the role.

That is not to say that independence argument does not have merit, because it clearly does, but surely one of the reasons that a non executive is brought on board is for their ability to think and act independently, something that can obviously be established during the selection process. It is also difficult to establish what level of remuneration is excessive, in that £30,000 for some individuals would be a considerable sum whilst for others it would be pocket money.

We at Orchard have always been big fans of non-execs for all companies, and have had our own from the start. Good non-execs add considerable value bringing experience and knowledge to the party as well as providing a vital sanity check for executive directors and managers, and standing up for the interests of outside shareholders. One of the reasons that we have a strong relationship with the Non Executive Directors Association (NEDA) is the desire to promote good corporate governance through a strong non executive presence on company boards.

We all want knowledgeable, experienced, independent, diverse non executive directors in big and small companies who are willing to stand up to and challenge executive managers where necessary. We also expect these non execs to make available the necessary time to undertake their role, and to take full director risk and responsibilities when carrying out their role. We therefore cannot be surprised when they start to demand remuneration that reflects their skills, their time and the risks that they take.


Antony Doggwiler
ajd@orchardgrowth.com

It’s a VAT trap…….

I tend to count myself as one of life’s optimists (supporting Spurs tends to do that to you), and I have no doubt that sooner or later we will be out of recession, and enjoying a period of steady, if maybe not exciting, economic growth. The creativity, determination and energy that I have seen over the past twelve months, as business people old and new have faced up to the reality of the economic situation and looked at how to improve their way of doing business, and the goods and services that they provide, has left me convinced of that.

However the accountant in me can never stop looking at potential downsides, so that I can ensure that I have some contingency plans in place to cope. One big lurking downside, along with dealing with the government deficit and the requirement to slash (there is no other word for it) public expenditure, with its consequent impact on unemployment, is the end of the VAT rate cut stimulus that the government put in place at the end of last year.

I fear that this has been forgotten among the various sightings of green shoots and the FTSE index rocketing over the 5,000 mark, but come 1st January 2010 VAT will be back up to 17.5% (or even 20%). Once again systems will need to be changed, wasting valuable time and money, but what will be more interesting is how many businesses will increase their prices as a result. I am sure that most of you will have noticed that since the much trumpeted “point of sale” VAT reductions that major store groups put in place last Christmas, prices have more or less drifted back to their pre-reduction levels. Will there be an increase in prices over and above their pre-VAT cut level, or will firms have to swallow the increase putting even more pressure on profits and cash?

Savvy businesses will have used the VAT reduction to squirrel away some cash (something that I advised clients at the time, believing that this was a better use of the rate reduction rather than adding to the discounts that were already in place for bargain hunting consumers), which they can use to support their businesses in 2010. For other businesses the VAT jump is going to be yet another hurdle for them to overcome. Hopefully it won’t be one too many.


Antony Doggwiler
ajd@orchardgrowth.com

To engage or disengage, that is the question…

Having sat through a thought provoking session on employee engagement last Friday at the IOD West Surrey People Forum, it was somewhat dispiriting to come across a survey in this morning’s paper that, in spite of the fact that their companies have lost on average almost a third of their value, executives at Britain’s top companies earned 10% more than in the previous year. This compares to the overall 3.1% increase that ordinary workers “enjoyed”.

Not doubt these executives will use the “L’Oreal” defence (“because I’m worth it”) to justify their largesse, whilst exhorting their employees (those who are left after the most recent round of downsizing) to buckle down and take one for the company, but to use a phrase that has been much used already in respect of politicians and bankers “they still don’t get it do they?”.

Had they been at my people forum last week, they would have heard from Jonathan Scott of em(ic)* about engaged employees i.e. people who enjoy the work they do and “who unlock their discretionary effort to create a winning organisation”, and the potential of such employees to outperform on sales, growth and profit by 2:1, a compelling business case you might think. However the continuing divide between what bosses say and what they do, as evidenced by the pay statistics above, is much more likely to lead to employee disengagement, which one would think was not what is required in the current climate.

Yes top people will earn, and deserve to earn, more based on the skills and responsibilities that go with their jobs, and entrepreneurs in particular deserve to be recompensed for their risk taking. However too many senior executives, both in the private and public sectors, take no risk and little responsibility in their roles, and it is about time their pay packets recognised this. Chances are that their employees already have…..


Antony Doggwiler
ajd@orchardgrowth.com

Credit where credit’s due...

Abbreviated accounts filed ten months after the year end.

"At last! What a horrible year it was, glad that’s out of the way. Well, that is all my accounting done for another year apart from a few other bits and pieces to keep the taxman happy. Still the accountant and bookkeeper take care of all that. Job done, next!”

“What’s that? Our main supplier has cut our credit lines? Why? Because our latest set of accounts as filed at Companies House aren’t very good and are out of date? But that was ages ago! What about those new orders we’ve just won in the teeth of the recession? A couple of them gave us some cash up front and we’ve just banked some large receipts on a profitable old job so we’re quite flush at the moment. However we really need those additional supplies. You want a set of management accounts? What are they when they're at home?”

Genuine quotes from a small business owner? Maybe not yet, but they soon could be. Research by Graydon, the credit management specialists indicates that the lack of publicly available financial information could lead to many SMEs being refused credit by key suppliers. Therefore such businesses may need to have up to date financial information available to share with credit rating agencies. Indeed Graydon have teamed up with Validis to develop their own enhanced credit information service based around validated up to date management accounts.

The increasing number of financial reporting obligations that are likely to be imposed on SMEs don’t end there. Debate is raging within financial reporting circles as to when and how SMEs can be brought into the International Financial Reporting Standards (IFRS) net. Indeed, if the Accounting Standards Board has its way, it could be that our much loved UK GAAP will soon be a feature of history textbooks rather than accounting textbooks, as companies will ultimately be expected to adopt either full IFRS, IFRS for SMEs or the FRSSE for smaller entities.

Funnily enough, during a recent clearout, I came across an old exam paper that posed the question as to whether the future should be “accounting for everyman” i.e. simple and understandable or a highly specialised profession. It seems to have gone in the direction at the latter, with accounts being increasingly detailed and complex and requiring an in depth study by experts in order to fully understand what they are actually saying. This was particularly brought home to me when analysing the accounts of a couple of quoted US companies for a client recently (although ironically the disclosure requirements for unquoted companies in the US would appear to be minimal).

Perhaps another anguished cry can be added to the list of quotes above. “International Accounting Standards? But we don’t do any export business! Help!”



Antony Doggwiler

Everybody Needs Help Sometimes

Talking to lots of businesses, as I do in my line of work, their problems and issues currently seem to fall into the following categories.

• We are doing badly - we are being screwed by the economic conditions, government, market, customers, suppliers, bank (tick those that apply). We are not sure that we can survive.
• We are doing OK - it’s not brilliant, and it’s a struggle sometimes, but we are coping with the current situation and looking at how to develop our business to take advantage of the upturn when it comes
• We are doing really well - we are almost apologetic about the fact, as if we should not be doing so well in the current climate, but we are, and we now need to take out business to the next level.

All of the businesses above have one thing in common, even if they won’t admit it. They need help. More importantly they need help and advice from people who are not working in the business.

Yes I know this seems like vested self interest and I can hear you all shouting out “hey, he would say that wouldn’t he”. External advisors, be they called consultants, professional service providers or non-executive directors often get a bad press, some of which is definitely deserved.

We often read about poorly managed consultancy projects that cost far more that was originally envisaged and do not deliver what was promised.

And yet on the whole external advisors do their utmost to provide the best service they can to their clients and add as much value as possible. There are good and bad advisors in the same way that there are good and bad businesses. The key, as in any business relationship, is to get things right from the start, which means proper planning, careful selection and managed expectations on all sides.

External advisors do not need to be expensive. For example, Business Link is a good source of free basic advice. However, even they will still refer you to their supplier matching system for more specialised in depth advice. Also, like all businesses at present, advisors are having to be imaginative, and there are some good deals around at present, such as the Orchard FD for £12k promotion. However it needs to be borne in mind that they need to eat, pay the mortgage and pay for their own training and development to maintain service levels, so sides need to be reasonable when negotiating an agreement.

There is a tendency for businesses to believe they know it all, or can do it all, which is often based on cost and cash considerations. However too many businesses are being held back by not getting the right advice at the right time.

With a clear written agreement and identified deliverables, an external advisor could be a very worthwhile investment, even in these troubled times. Give it a go - you might be pleasantly surprised!

Antony Doggwiler

When the going gets tough, it is time to show real leadership

Leaders. Overused, abused, misunderstood?

Possibly, although I think these words are more apt when they apply to the term leadership. Never in the field of business education has there been a more analysed and yet arguably more poorly taught discipline. Many would-be business leaders on leadership courses end up being put through all sorts of self analysis tools, pumped full of the most up to date leadership theories and encouraged to seek their examples from the sporting and military world. And yet in spite of this, leadership in the UK remains of varying quality, and most business failures tend to be the result of poor leadership.

I recently attended a Surrey Chamber of Commerce breakfast which had leadership as its theme, and featured Simon Hazeldine of Mentor Group as its main speaker. Simon’s theme was that leadership was about results and that basically without great results, you cannot have great leadership. He noted that the quality of a leader was reflected in the quality of the team that they led, and that an employee’s behaviour will often be determined by that of their leader. He saw employee engagement as the key to avoiding the not insignificant costs of poor performance, and that leaders needed to use logic and emotion to win the hearts and minds of their people. All very good stuff, and well worth the early morning trip to Epsom Downs racecourse.

As highlighted by Simon above, the best leaders invariably have the best teams, and it is often how these teams develop their own leadership qualities that will shape their success. Regardless of position, job content or (dare I say it) salary level, nearly everybody is expected to show leadership in some way, and it is organisations that recognise this, and train their people accordingly, that are more likely to be successful in the long run.

But leadership training should not just be the preserve of big corporates. Dealing with SMEs as I do, I am often struck by how the assumption that entrepreneurs are natural leaders is accepted without question. Sure, some entrepreneurs do show the right aptitude for leadership, but many begin to flounder the moment their businesses start to gain any sort of momentum, or worse, they believe that because they are the boss, and that it is their company, they will automatically have leadership status conferred upon them without the need to do anything to justify it. Such businesses invariably underachieve, which is a shame, as they often have the potential to become real contributors to the future growth of our economy.

Leadership has probably been quite easy over the past few years as it has been relatively simple to be successful. However, given that success is much harder to come by in the current climate, now more than ever good quality leadership will be the key, not only to surviving, but to being well prepared for the upturn when it arrives.

Antony Doggwiler