Steven Mugglestone

The more I learn, the less I know

Help, changes to childcare voucher scheme

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 Leicester-based chartered accountancy firm, MGC Hayles is advising that the existing tax-free employer childcare voucher scheme is to be scrapped, with a more generous system set to take its place.

The new tax-free childcare scheme (TFC) will be introduced in autumn 2015 and will be available to households where both parents (or the single parent) are working and paying tax, and neither parent earns more than £150,000 a year. 

Under the scheme, which is expected to see parents able to open an online voucher account, the Government will top up any payments made by parents. This means that for every 80p paid in by parents, the Government will top this up by 20p, up to an annual maximum of £1,200 per child.

Under the current system, employers can offer vouchers for staff with children to redeem with Ofsted-regulated childcare providers. Although these can be of any value, the amount qualifying for tax and National Insurance (NI) exemption is capped at £933 for employees and £402 NI for employers.

Steven Mugglestone, partner at MGC Hayles, said: “At present, childcare vouchers are typically offered by employers on a ‘salary sacrifice’ basis, where the employee gives up a percentage of their pay in exchange for the vouchers. Under the new system, this will stop, with employers having to pay the equivalent amount of salary which was previously being sacrificed for the vouchers. Because the salary will be subject to tax and NI, employers will lose their £402 per employee NI saving, which means some employers may wish to think about other NI-free benefits they can offer employees instead.

 “The new scheme will not affect employers who provide free onsite childcare, as this will still count as a benefit in kind, free of tax and NI.”

 For further information, please contact MGC Hayles in Leicester on 0116 333 8500, Nottingham on 0115 941 5193 and Birmingham on 0121 236 3317.

Steven Mugglestone is a partner in MGC Hayles, Chartered Accountants, members of UK200Group with offices throughout the UK and Associates overseas.

Join us in supporting Rainbows Hospice for Children and Young People:RainbowsConcert


Written by Steven Mugglestone

June 6, 2013 at 12:24 pm

Join us in Song for Rainbows

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As part of the on-going support and sponsorship of Rainbows Hospice for Children and Young People, MGC Hayles and Woods Coaches are hosting and promoting an evening of songs from movies and musicals performed by one of Leicestershire’s leading choirs, the 20 strong mixed voices of The Tudor Choir, who perform regularly for charities and organisations throughout Leicestershire and featuring a children’s choir from The Pastures Primary School.

The evening concert, which is presented with the help of BBC Radio Leicester, is being held at the Fraser Noble Concert Hall at Leicester University on Thursday 4th July.

With well known songs from equally well known musicals and movies, the evening will include many songs that are favorites of everyone, with some less common, but equally as entertaining.

Tickets at £10 each and £6 for concessions are being sold now and are limited in number, with all proceeds going to Rainbow, so please do come along for a fantastic evenings entertainment of live music and really help Rainbows at the same time.

Tickets are available from MGC Hayles, 0116 233 8500 and Woods Coaches 0116 278 6374.


Written by Steven Mugglestone

June 6, 2013 at 12:07 pm

Posted in Charity

How much does HMRC owe your business?

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MGC Hayles is urging business owners to check if they are due a Corporation Tax refund from HMRC now and not just at the end of each year, as delays are common, as well as asking whether they have ensured that they have claimed a number of major, basic tax reliefs, such as research and development.  They are holding a number of seminars to re-iterate what basic, legal and generous reliefs that are available, which are not taken up.

As well as many reliefs going unclaimed, MGC Hayles says that there was a large jump in the amount of refunded by HMRC over the past year – up from £5bn in financial year ending March 2011 to £7bn in 2012.

Check your payments on account

Larger companies are more likely to be owed money, as they pay Corporation Tax in advance (in quarterly payments), based on their previous year’s profits.  If profits in one year are lower than those in the previous year, due to recessionary pressures or a general decline in business, then HMRC will refund the overpaid tax.  In reality, however, many firms face a long wait to receive any refunded Corporation Tax

A partner at MGC Hayles, Jason Seagrave, reported that the CT refund system can be a bit of a “lottery”, with some companies receiving a refund quickly, whereas others have to wait a number of months before their claim is processed.  In the current economic climate, any delayed payments will put extra pressure on businesses with poor cash flow.

“When a business has overpaid Corporation Tax, refund delays can cause more pressure as the money should be in a business’ bank account, not sitting with HMRC. A missing Corporation Tax refund will add to the difficult financial situation a business might be in that led to the need for a refund in the first place.  We have seen this on numerous occasions and have stepped in to help our clients to get the money back”

Potential insolvencies

In fact, there have been rare situations where firms have gone into administration while waiting for an HMRC refund; “The refund that HMRC is sitting on could be the lifeline that helps a company stay in business, particularly when there is another large creditor to be paid.”  In the year ending March 31st 2012, almost 350,000 companies received CT refunds from HMRC, with an average payout of £20,231.

Always check the payment

Jason Seagrave urges companies of all sizes to check if they are eligible to claim a Corporation Tax refund – either due to simple over-payment, or due to loss relief or an R&D credit relief (it is worth noting that small companies can claim for an R&D credit if it has recorded no profits for the year in question).  Commenting on the significant rise in CT refunds between 2011 and 2012, Jason suggested that many companies may have been “over-confident about their profit predictions recently”, clearly expecting the economic downturn to have given way to a stronger recovery by now, but as we can see from the latest GDP figures, the UK economy is still very much struggling to grow.

MGC Hayles will be holding a breakfast seminar at the Leicester Tigers on 23rd May and the Notts County Ground on 30th May to highlight many of these areas and safe and legal reliefs that are available.



Written by Steven Mugglestone

May 9, 2013 at 10:10 am

Cash flow worries for many small businesses yet most do not systematically manage their cash and working capital

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Nearly half of all small and medium-sized business owners in the East Midlands are worried about their cash flow over the next 12 months, according to a survey by banking group Santander.  A total of 42 per cent of the East Midlands business which responded to the Santander study reported they were “worried” about cash flow, with a further 15 per cent saying they were “very concerned”. 

Late or failed payments from customers were given as the main reason for cash flow issues followed by weak product sales and customer demand.

Despite all of these worries, and before finding alternative sources of finance, we find that many businesses do not systematically mange their working capital and cash, as many do not have the help and resources available to have an experienced Finance Director as part of their team.  We are finding that we are dealing more and more with hands on management support for our business clients and new clients, as they have not received this support and help from their own accountants.

Instead of worrying, there are a number of systems and improvements that can be put in place to really help improve cash flow and put the business owner back in control.  These include:

  • Ensure that you have a rolling 13 week cash flow, updated weekly, to ensure that you can foresee the peaks and troughs and overall requirements and start to manage your cash flow.
  • Actively manage key working capital areas, ensuring that you understand your stock and debtor levels and requirement/supply times.
  • A back to basics understanding of their own gross margins and profitability to understand that, whilst cash is king, selling less of more profitable goods and services may be better than selling volume of less profitable.
  • Many businesses still hold too much stock and, in particular retail businesses, seasonal and fashion changes will mean that stock held at the end of season will need to be significantly discounted, significantly reducing profitability as well as tying up cash for the period.
  • Many businesses still do not have a systematic and written credit control procedure.
    o   Ensure that customers accept their invoices as soon as possible and deal with any problems immediately.
    o   Ensure that you have an appropriate contract with all customers and that credit control and credit policies are included in that contract.
    o   Ensure that there is a system of letters and calls and stick to that.  Keep in contact with your customers who owe you money.  Sometimes you may need to solve their cash problems by introducing finance to them.  Many businesses have access to providers of finance for their customers.
  • Keep communicating with your suppliers and creditors, ensuring that you obtain the best credit terms but do not leave them in the dark, which may result in cessation of supply and court action.
  • Keep communicating with your bank, as neither side like surprises and they may be able to help and/or compromise

·         There are alternative sources of finance available and many businesses are missing out on effective alternative financing solutions, such as invoice or supply chain finance and in doing so opening themselves up to cash flow volatility.

It is quite remarkable that nearly half of businesses are concerned, but have not either sort or been offered help from their own accountants.  This is partly the difference in experience and commercial approaches that real business advisers provide.  If you are a business facing this challenge, please do make contact with us and we will help to provide support and some of the answers to you.

Written by Steven Mugglestone

May 2, 2013 at 8:37 am

Our Lessons in Change and Improvement:

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All organisations realise that change is inevitable to achieve continued improvements. Change and improvement is an on-going process and part and parcel of the life and success of a business. Sometimes, however, in order for the business or organisation to achieve the aims and ambitions that they set out with, change has to be a bit more urgent and radical.

Sometimes also an SME has to face radical change to help the owner build the business and achieve a successful exit. Most corporate finance advisers agree that to maximise the value of a business, the owner should be able to walk away from that business and it should be able to operate successfully by itself, without their input. This can be radical change for an entrepreneur who can be typically driven and controlling. How can you ensure that the required change and improvements are implemented successfully and this is sustained without the owner/manager reverting to “doing everything themselves”.

Here are some of the areas that from experience we believe can be the key to the success of change and improvement:

• Love your employees
• Building capacity
• Connect peers with purpose
• Learning is the work, consistency and innovation
• Transparency and openness
• System learn (and improve)

Love your employees

Focus has to be given to your employees. The key is both bringing them into the development of the organisation and ensuring continuous learning and development. Appraisal systems, development programmes, sharing information and regular staff consultation is not just for large organisations. It is the key to ensuring that your employees are part of the journey of the business and an integral part of the team and this will help to ensure successful change and improvement continues.

Building capacity

Automation and documented practices are the order of the day, but people are the real key to building capacity and the ability of the business to achieve and produce more. To successfully build capacity for your organisation it will mean looking at competencies, resources and motivation. To use an analogy getting the right people on the bus; getting the wrong people off the bus; getting the right people in the right seats; ensuring that all are motivated (and remunerated, seeing that they are sharing in the success of the business) to achieve and ensuring that the bus is in good working order.

The other key to building capacity is a documented system/process. Without the need to go into details, successful organisations such as McDonalds can look to ensuring that a new restaurant franchise is successful in opening and continued operations as the systems and processes are well established and documented, ready to be used and adopted as and when required.

Connect Peers with Purpose

Your staff can learn from you and each other (which can also mean carrying on doing the same thing in the same way over and over again, as that has it has always been done). Staff, generally want to learn and improve and a key way to achieve this, is to share good practice with others.

Purposeful interaction works effectively under three conditions:
• When the values of the organisation and those of the individuals and group gel and mesh
• When information and knowledge about effective practices are widely and openly shared
• When monitoring systems are in place to detect and address ineffective actions, whilst reinforcing and consolidating effective practices

How can a small business achieve this (without fear of losing staff). One suggestion is that your accountant will act for a number of businesses. They can either help directly, perhaps look at having one of their own staff help one of yours directly to share good practice and ideas. They could even introduce you to another client with similar aims and look to their own staff to start to share good practice (under an appropriate agreement).

Learning is the work – consistency and innovation

Looking at the success of such organisations as Honda, the single greatest difference with them and other organisations is the depth of understanding of their employees regarding their work.

The essence of Honda’s approach to improving performance consists of three components:
• Identifying critical knowledge
• Transferring knowledge using job instruction
• Verifying learning and success

The key to all of this is relentless consistency so that everyone fully understands their work, helps to train others and all are continuously appraised.

Transparency and openness

On-going data and access to seeing effective practices is vital for success. Employees need to understand the road that they are on and be given information which shows that the business is on that road, or if not how the business is getting back on it. Information sharing is key, it does not mean everything, but key performance indicators should be identified, agreed, shared and monitored.

Another key area of transparency is to consider a 360 degree appraisal system, where the directors/owners of the business are open to appraisal, review and recommendations by their staff. This can be scary for some, but has proved to be effective for all and many large and successful organisations now use a 360 appraisal system.

Systems Learn

Continuous development and learning depends on developing all of the staff, all of the time. The fact that organisations such as Honda and Toyota can succeed over decades and that these companies show no leadership effects or changes from succession and continuity is because of a robust set of inter-related management practices and philosophies that provide advantage above and beyond the ideas or inspirations of a single individual.

Once a system and process is agreed, it should be documented. Improvements to the system can be addressed and documented accordingly. The key efficiencies gained from this are:
• Staff understand what is expected and have guidance for work
• The systems will continue to reflect the best possible practice available
• Staff will be supported by the process and knowledge
• Staff changes and new staff can be accommodated efficiently


The Cons & Scams continue and we are all blissfully unaware

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We all know that we are in recession and prospects of     business growth remain challenging.  We also know that in economic times like this, we all have to be more imaginative and more creative in business ventures and ideas.

One area that does not diminish in a recession is fraud and scams.  In fact the willingness to lie, cheat and steal from the state, big and small businesses and people in general seems to grow unabated.  The imagination and brass neck cheek is sometimes astonishing, but we continue to live and learn.  According to BDO, reported fraud in the UK over the past 5 years has now topped £7bn, which is equivalent to what the UK spent online over Christmas 2012.

Social media, Facebook and Twitter campaigns encouraging us and our families to share campaigns and issues are now common place and are seen on an hourly basis.  In 2012, my own son purchased a wrist band to support the search and conviction of a notorious African warlord, Kony, along with many hundreds of thousands of well meaning teenagers, only to find that the so called charity behind the campaign was somewhat dubious, and the wristband only lasted a couple of weeks, before snapping anyway.

To act both as a warning and to give some insight into what fraud and scams look like, we have highlighted some of the more “popular” and “common” reported cases:

Clairvoyant benefit fraudster didn’t see it coming

A Welsh clairvoyant admitted to unlawfully claiming over £33,000 in income support, jobseekers allowance, housing benefit and council tax benefit whilst working as a telephone psychic reader and a sex chat-line operator. Dawn Pearson charged customers £1.53 a minute for psychic consultations, while claiming a wide range of state benefits for being too ill to work.

Inventing children is a little too obvious

Kerry Melia was jailed for eight months after ‘inventing’ 15 foster children to illegally claim more than £60,000 in benefits. Despite already being under investigation by HMRC for submitting false claims for 10 non-existent youngsters, Melia asked for help supporting a further five foster children before finally being taken to court.

Learning from James T Kirk does not help

A Chinese gymnastics official was charged with fraud after falsifying a score to help a compatriot win a gold medal at a major tournament. The International Gymnastics Federation found that Shao Bin had ‘altered an execution score prior to posting’ without telling event officials, resulting in a gold medal for gymnast Zhang Chenglong in the men’s floor exercise final at the Asian Games.

Learning from Jeremy Kyle does not help either

Amie Burn and Claire Hardy pleaded guilty to conspiracy to pervert the course of justice after attempting to falsify a paternity test. Burn had paid Hardy £100 to take her place at the court-ordered test in order to prove that her former boyfriend was not the father of her two-year-old son, thereby denying him access to the child.

Double booking at a minimum

Derren and Tracy Grant from Wincanton were jailed for 27 months and nine months respectively after being found guilty of advertising an occupied villa for rent in Spain. Some 300 holiday makers lost more than £100,000 in the fraud. In one incident, it was alleged that as many as 12 parties had been booked into the same property at the same time.

Vodka from meths and bleach

Kevin Eddishaw was jailed for seven years for manufacturing thousands of bottles of fake vodka using methylated spirits and bleach. Investigators estimated that 165,000 bottles of the falsely-branded Glen’s Vodka had been made before Eddishaw and his team were apprehended.

Shaggy dog insurance claims

Julie Pullman was failed for nine months after fraudulently claiming £37,000 to cover the cost of treating her non-existent pet dogs. Pullman had created fake vets’ bills in order to receive payment from her insurance company. Worryingly, there has been a growing number of reports of owners selling, abandoning or even killing pets in order to claim for early death.

A warning for HS2

The Chinese National Audit Office (NAO) revealed that 187 million yuan (around £20 million) was misappropriated by individuals or companies involved in building the 1,318-km Beijing-Shanghai high-speed railway. The announcement followed the dismissal of railways minister Liu Zhijun.

PT Barnum and a sucker born every day lives on

Peter Gillespie, a chartered accountant from Windsor, was jailed for eight years for importing fake drugs from China and selling them as genuine medicines for cancer, heart conditions and mental illness. The medicines were used by pharmacies, hospitals and care homes, and it is believed that at least 100,000 doses ended up being given to patients. Gillespie was caught after a wholesaler spotted a mistake on the packaging.

Green fraud and carbon emissions

Six men were jailed in Germany for a 300 million euro (around £249 million) fraud involving carbon emission permits. Three Britons, two Germans and a Frenchman bought the permits overseas without paying any tax, then resold the permits to each other in order to fraudulently claim the tax back. The judge told the perpetrators that they had brought “the carbon market trading scheme into disrepute.”

Land banking (if it’s too good to be true, it’s too good to be true)

Rogue property developers selling land that they claim has great investment value, when there is little or no chance of it ever being developed, are on the rise. Investors who have purchased a stake in plots of land that turned out to be worthless have lost an estimated £200 million.  This involves plots of land offered for sale, often online, with the promise of sizable returns when planning permission is approved for housing or other development. Yet often the land is located in areas protected from development by planning law.

The companies involved soon disappear with investors’ money and as the firms are not protected by the Financial Services Authority, their funds are not covered by the Financial Services Compensation Scheme.

Money laundering by money mules

Cases of money mule fraud have soared during 2011, according to figures from CIFAS – the government’s fraud prevention agency – which show an increase in the number of both knowing accomplices and innocently duped individuals.

The misuse of facility fraud, which involves an account or policy that has been legitimately opened but is later used fraudulently, rose 12% in the first ten months of 2011. CIFAS reports that a large proportion of the frauds display the hallmarks of ‘money mule’ activity; where a fraudster recruits another (often innocent) party and uses their account to launder money on their behalf.

Fraudsters recruit unknowing accomplices through email under the guise of offering employment, seeking a personal favour, or through internet shopping sites. The recruits are persuaded into receiving what are essentially fraudulent payments and then passing funds on. The ‘mules’ are frequently offered a small financial incentive to encourage involvement and face difficulties in proving their innocence when the fraud is discovered.

More Green and Carbon credit fraud

The Financial Services Authority have reported a ten-fold increase in carbon credit fraud, which lures investors in with the promise of steady returns and a tug on their eco-friendly conscious.  These claim to offer people the chance to profit from carbon credits. Under regulations that permit businesses to emit a tonne of CO2 – the companies claim to offer investment in green projects like a forestry scheme or a solar panel project, which generates carbon credits that are then sold on to heavy industry.

A flashy brochure or website tells of a reliable ‘government-backed’ scheme which provides reliable returns for investors. Such a scheme doesn’t exist however – the truth investors only discovered when they have parted with their cash and the company is untraceable. As with land banking, fraudulent companies are not covered by the FSA so victims have no course for recompense.

HMRC offering a tax repayment (obvious really – phishing scam)

Receiving an email from the taxman saying you are owed a payment may seem like a nice surprise, it is highly unlikely and is actually from fraudsters trying to relieve you of your cash instead.  HMRC sas confirmed that reports of fraudulent ‘phishing’ emails have risen by 300% over the last year. Almost 24,000 such emails were reported to HMRC in August alone and the office is currently helping to shut down around 100 scam websites a month.

The emails provide a “click-through link” to a cloned replica of the HMRC website. The recipient is then asked to provide their credit or debit card details – all the information the criminals need to clear your account, and sell on your personal details.

HMRC warns anyone receiving an email claiming to be from them telling the taxpayer they are due a tax repayment not to follow the email’s instructions. HMRC says it will never email or telephone taxpayers about refunds and only write to inform by post.

The great disappearing loan scam

This scam targets vulnerable people who are in financial difficulty and unable to access credit through regular channels like overdrafts and credit cards. The fraudsters advertise loans and those that sign up are asked to pay an upfront ‘arrangement’ fee of around £60-£70 fee before the loan is approved. Borrowers pay the fee only for the ‘loan providers’ to disappear without a trace.

In truth, due to poor credit history or lack of income, the applicants are unlikely to be approved for a loan in the first place, but the fraudsters have no intent in pursuing the application anyway.

Crash for cash scams

While honest motorists battle rising insurance premiums, those to blame for the price hikes continue to undertake fraudulent claims. Insurer Direct Line reported a hike in the number of ‘crash for cash’ scams this year – where fraudsters fake accidents by making unnecessary emergency stops at busy roundabouts or slip roads, forcing motorists to crash into them. They then make bogus claims to the innocent motorist’s insurer, often including fictitious injuries and passengers.

Driving school scam or why I am such a bad driver

Learner drivers have been taken for ride by being unknowingly taught by trainee instructors. An investigation by the AA found up to 27,000 extra driving tests have been failed in the last year because one in 10 learner drivers are unwittingly taught by an instructor they do not know is learning on the job.

With research showing much lower pass rates among trainee instructors, they have cost learners over £1.7 million in additional test fees over the past 12 months, with millions more believed to have been spent on extra lessons needed to reach test standard.

The AA is lobbying ministers to introduce new rules requiring driving schools to tell learners, at the time they book lessons, if their instructor will be a trainee.

The thieving magpie/postman or the postman always steals twice

A Leicester postman stole £46,686 worth of mail over two-and-a-half years. Yogeshbhai Patel, 38, was jailed for two years for stealing mail including 2,000 DVDs and 2,250 games along with CDs and other electrical equipment. He intercepting the valuable packages and spent the money on living a luxury lifestyle including helicopter rides and a trip to Las Vegas.

It is reported that while his bosses thought he was a model employee as he arrived an hour early for work at the delivery office every day, he was actually looking for packages to steal.

Leicester Crown Court heard he then ensured the valuables, destined for other postal rounds, went into his own sack of mail. Patel was caught when investigators received an anonymous tip-off that a postman was selling a large number of games and electrical items to a store in the city centre, where they found a special previously marked X-box game, out of its wrapping, on sale for £1.50.

Smart energy meter scam (Caveat emptor)

The nationwide roll- out of smart meters is intended to help households save money by becoming more informed about their energy usage – but fraudsters have been quick to relieve people of their cash instead.

The Trading Standards Institute reported over 200 cases where elderly homeowners have been targeted by telephone cold callers, purporting to be from their energy supplier and offering energy saving devices which could cut their bills by 40%.

The TSI tested the devices in homes where owners had fallen for the scam, only to find they both failed to satisfy electrical safety standards or deliver any tangible energy savings.

Thermal camera and ATM fraud (Sherlock Holmes would be proud)

As consumers become more savvy at cashpoints by covering the keypad when entering their PIN and avoiding any machines that look suspect – so do the the fraudsters in stepping up their game to grab our cash.  Thermal cameras that track ATM pin numbers are the latest weapon in their arsenal and US scientists have warned it is the next threat for this form of crime. Researchers at the University of California at San Diego found that up to 45 seconds after a person types their pin code into an ATM machine or door entry-pad the numbers and even the sequence are still readable by thermal cameras.

You have been warned!


Written by Steven Mugglestone

April 16, 2013 at 11:39 am

Posted in Fraud, Social-Media

Tagged with , ,

Business Turnaround, a Dark Art or Common Sense and a Proper Business Plan

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More than half of Britain’s small businesses collapse because of cash-flow problems. The UK Insolvency Service sites 65 common reasons why businesses fail.  Many advisers and “experts” publish lists of a number of reasons, seven being a common number, unlucky for the failed business, with clearly a prize and first place going to the Insolvency Service at 65, clearly retired exhausted after then.

We like to keep things simple as this helps us and our clients, but we believe that the success of a business (and therefore the failure of a business) is down to one area (ok, poetic license as it is a related area), cash flow problems due to the lack of a real plan and system of control (i.e. the area that an experienced business orientated FD is good at).

Looking at seven common reasons why businesses fail, it points to the same cause and solution:

  • Business started for the wrong reasons and to try and make money quickly (lack of a real plan and system of control)
  • Poor management and lack of management (lack of a real plan and system of control)
  • Lack of capital (lack of a real plan and system of control)
  • Poor location and marketing (lack of a real plan and system of control)
  • Lack of planning (lack of a real plan and system of control)
  • Over-expansion (lack of a real plan and system of control)
  • No website (lack of a real plan and system of control)

No apologies for labelling the point but all FDs would say the same thing, lack of cash caused by a lack of a real plan and system of control and improvement.  Other recent articles that we have read with interest now refer to zombie businesses and that pretty much sums it up, a re-animated corpse, with no mind of its own; no control of its own; in fact control lies with others; never learning and never changing. In fact a favourite observation of ours is the common lesson for most areas of human behaviour; “If you do the same thing that you have always done, you will always get the same result.”  This is as important to businesses as anything else.  In fact in business, if you do the same thing that you have always done, it is likely that the future results will be worse than before.  We do recognise that many also say; “If it’s not broke then don’t fix it,” but this is also ignoring both normal wear and tear and inevitable depreciation.

Speaking to and working with people who have experienced or been a part of a business failure (and those of us that have seen, have worked with and have been a part of successful turnarounds), there are a range of views and emotions, noting the lack of support from interested parties such as banks, other lenders and major creditors, but in the vast majority of these, there is a common issue, lack of a real plan, lack of innovation and change, lack of a system of control which leads to a cash flow crisis.  In fact the references to lack of support from the bank, when explored further, usually uncover a situation where the business has pretty much lost control to the bank or lender.  There are also a significant and scary number of businesses which only produce annual statutory accounts, find out that they have made a loss, months after the year end; face another issue, such as loss of a major customer or restricted key supply and then tell the bank all the bad news at the same time, asking for funding/overdraft extension, with no solutions being offered by them.  They lack any plan in respect of the relationship, communication and information being given to their bank and are confused and angry when the bank then either refuse the extension or worse still, reduce or remove the overdraft facility completely.  We are not going to comment on the issues surrounding banking over the last two years or so, as this is well documented, but we are aiming to concentrate on how businesses can and should take matters in their own hands and control.

As we are still in what can only be described as challenging and uncertain times for businesses, there are now many who describe themselves as turnaround specialists and look to help to ensure that your business starts on a road to recovery.

I will now make a sweeping generalisation and observation, but in my opinion, there appears to be broadly three types of turnaround specialists;

  • Investors and their advisers who are looking to save the business but also to take advantage of the vulnerable position of the business, to take part or majority ownership of the business for considerably less than normal market value, this is harsh but to be expected;
  • Insolvency experts acting as expert advisers (but usually only looking to support the lending bank).  The reports that they produce and advice that they give can be very biased for not only the lenders positions, but for them to win the future work from the lender, quite a lot of business people recognise this with the analogy of putting Count Dracula in charge of the blood bank and emergency blood supply;
  • There are, however, other experienced advisers who have been there, done that and have the necessary skills and desire to help the business turnaround and be successful.

Going back to the title of the blog, despite the mystery and myth of business turnaround specialists, it is not a dark art.  Businesses are successful because they have a good product; a real plan; a system of control and improvement and control of their cash, businesses fail because they may have a good product but they do not have a real robust plan; have no real system of control and improvement and they do not have control of their cash.  Businesses achieve a successful turnaround because they eventually recognise the position that they find themselves in and take the appropriate action and introduce a real and robust plan; a system of control and improvement, no matter how simple, and control of their cash, before it is too late.

In some overtrading situations, where the businesses are growing rapidly, control can be lost as they did not believe that they needed it.  The sales and money keeps rolling in.  In many situations, we have seen the business hit a wall, when either an unexpected cost arrives (usually the tax bill, but if you do not have a real plan then anything could be unexpected) or when they face a supply problem.  We have seen many situations where a business has one main source of supply for a key component, product or service and when this supplier cannot provide the volume or specification required (or has gone out of business themselves); this has the knock on effect to our business.  This may fall under risk management, but it is common sense management that many businesses fail to address until it comes along to hurt them.  Having one supplier for a key area can prove fatal, indeed one key supplier sometimes can wield too much power over the business anyway.

As any successful and experienced FD would also tell you, a real plan is not only about one area, and it is common-place that the FD is the architect of the plan and its delivery; it is about ensuring that all parts of the business have a plan and the ability to deliver the plan and this has to include;

  • Recognition of where you stand, your strengths and your failings, what are your opportunities and what needs to be protected;
  • A good product/service combined with a marketing plan to deliver the appropriate sales;
  • A good knowledge of key supply and a good supply plan and agreements;
  • An operational and delivery plan, recognising and controlling key drivers in the business;
  • Appropriate recognition of your team development, management and leadership;
  • A budget which includes the key performance indicators relevant to the business;
  • An appropriate financial plan recognising the requirements for long term investment and finance as well as working capital management and short term cash flow;

Recognising the above and how an experienced FD can help and yes that includes the creative marketing stuff as well, when a business is facing financial difficulty it is cash that has to be the key priority and when we start to help this has to be the first area to control.  Sometimes, however, a formal insolvency route of administration or receivership will be required to allow the business to be put back on track, but sometimes a common sense plan will enable a business to right itself without the need for a formal insolvency process.

Some of the areas that a turnaround strategy and plan will include will be:

  • A thirteen week rolling cash-flow dealing with immediate and short term cash flow issues, identifying and managing the pressure points.  It is still remarkable the number of businesses that do not have a short term rolling cash flow plan.
  • A cash plan, breaking down what cash has to be collected weekly from debtors and how; what are the priority of creditor payments and then more formalised revised repayment schedules agreed with key suppliers.
  • A detailed recognition of short and medium term cash requirements and following a draft cash plan, engaging with banks and other sources of credit and lending to bridge the shortfall.
  • Recognition of the break-even position of the business and translation of that into a simple and understandable plan (i.e. the number of sales required a week or the number of conversions needed or jobs needed to be completed every week).
  • Following the break-even review, a plan for staffing requirements with the current and future work.
  • A marketing and sales pipeline made into a simple and realistic plan of hot leads and conversions to sales.  Who are they, where are we with the contract progression (which also recognises the price and profits for the contract) and control of this sales lead flow and reporting.
  • A rolling 13 week marketing and sales plan, what is coming in for the next three months and what marketing initiatives are being put in place for week 13 and onwards.  Having worked in retail this is a very useful, practical and vital plan that addresses every week the initiatives being put in place for week 13.
  • A profit improvement plan, reviewing all key supply and support contracts and where necessary going back out to the market for competitive tenders.  Again the real benefits will be obtained from having a full and detailed understanding of what it is you need and use, volumes, product requirements and when required, to be able to fully specify the tender and obtain realistic tender proposals.
  • A medium and long term plan of what the business needs to develop, following on from recognition of the business strengths, what are the real unique selling points that the business offers and how these areas should be further exploited for the benefit of the business.

We are not saying that business turnarounds are easy or can always be done with a positive outcome in every situation.  Sometimes the business has left the position too long or the market in which they trade has shifted significantly and the business has not changed to reflect that.  In many situations, however, businesses that are failing or are hitting a rough time can be helped and turned around by practical and common sense measures.  The business owner, however, needs to recognise the issue, take a step back and consider what is happening.  Many times the businesses are just doing the same thing over and over again (very zombie like) and with only their fingers crossed expect to see improvements and things change.  This will not happen in the majority of times and a more measured and practical critique and plan will be required.

I think it is fair to say that not all accountants and advisers are the same and some of the areas outlined above do define how a good professional adviser can add real value and support to a business and can help that business to get back on its feet and achieve the success that it first set out to achieve.


Written by Steven Mugglestone

April 9, 2013 at 8:51 am