Steven Mugglestone

The more I learn, the less I know

Posts Tagged ‘business advice

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.

 

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Written by Steven Mugglestone

April 9, 2013 at 8:51 am

Another Finance Director Area ……. Controlling Risk and How We Can Help:

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Another Finance Director Area ……. Controlling Risk and How We Can Help

For the full time or part time professional finance director, risk is an area that sits firmly under their jurisdiction, mainly as an FD possesses the analytical skills and wherewithal to be able to identify, evaluate and manage this area, but also sometimes because the business owner or other directors cannot face dealing with such an area.  For FDs and special project managers, the risk register and risk management is part of the skills tool kit.

See “How an FD drives a business when sometimes Accountants are just catching up”: http://wp.me/pQyUg-j

What is Risk

Risk, according to Wikipedia, is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss.  Risk management is therefore a matter for every organisation. For those who have been involved in any substantial grant application, or collaboration agreement or even a new business tender, a risk register identifying the risks that the project will go off course and what steps are in place to bring it back in line is common.

Risk management, therefore, is seen as the process of identifying, assessing and taking appropriate positive steps to either eliminate or reduce the key risks faced by an organisation where it is practical and cost effective to do so. This is important as we are considering real potential events and real potential losses.  Thus, proportionate arrangements can (and really should) be put in place by all organisations to minimise the probability and impact of the risks they face – or to deal with the consequences if an external risk cannot be fully controlled or eliminated.

Risk management therefore presents numerous challenges as it reflects the inevitable fact that assets, processes and people can and probably will fail or can be damaged by external events. This in turn can lead to consequences that are unplanned, unwanted and costly to rectify. At the extreme, disasters can happen and business will be tested with their disaster recovery procedures, which are the extreme areas of risk management, but most can recognise the positive outcomes from those businesses who have put in place a robust disaster recovery plan and those that went from bad to worse and even closure as their recovery plan proved not so robust.

A key component of risk is what can be termed Operational risk. Clearly this affects all businesses and relates to those elements that fall within an organisation’s commercial operations. These can often include:

  • Process and procedural robustness and integrity including legality and compliance with legislation, both general and industry specific
  • Staff, skills, training and documentation
  • Specific insurance and self-insurance
  • Supply chain, outsourcing and inherited risk
  • Infrastructure, systems and telecommunications
  • Physical and information security

Risk has two main components; impact and probability. Impact is a reflection of the loss or discomfort that may be caused by an event. Probability (or likelihood) is an indication of how often we can expect a particular event to occur. Taken together, they give an indication of our exposure to risk or how much we can expect to suffer as a result of unwanted or unplanned events. If we picture this on a graph of cost and likelihood, actions that sit in the high cost and relatively high likelihood area are ones that need to be seriously addressed and controlled.

As our understanding of risk management increases, so does the expectation and requirement for organisations to adopt appropriate policies, strategies, training and documentation. A well thought-out risk management plan is critical to the well-being and continuity of an organisation.   Any board of directors for a larger business will ensure that this plan is high priority for delivery and maintenance.

Help with a risk management strategy

A full-time finance director can help manage this area, but those organisations without a full-time finance director, we can help provide this support as part of our Finance Director Services. We can help you prepare a risk management strategy, with relevant supporting policies to cover:

  • Your staff and training
  • Your data, computers and information systems
  • Your internal control processes and procedures
  • Your corporate integrity and security
  • Your risk appreciation
  • A risk register and control documentation

Why do you need help with a risk management strategy

  • You know that you need advice generally on all areas of risk, and its management, that could affect your organisation
  • You want to help embrace and include risk management within the organisation
  • You know that you need help to develop key strategies and processes to manage risk
  • You want to review and refresh your existing approach to risk management
  • You want to improve the knowledge of risk management amongst your staff
  • You need to comply with statutory and/or best practice requirements in your industry

Bespoke Training

If a risk management strategy is to be truly successful, organisations must embrace a risk management philosophy at every level. As organisations grow and risks start to be managed at departmental and divisional levels, it is critical that all those involved in the process are fully trained and aware of what is expected of them.

As full time Finance Directors, those in our firm that have developed our risk management service and help our clients with risk policies, have managed this area within an organisation and we have developed this crucial service for our clients. This can vary from small practical workshops and seminars to larger scale training events. It is generally aimed at senior management, non-executives and middle managers to help them understand the process and embed effective risk management philosophies throughout their operations. However, we will tailor our training to meet the specific bespoke needs of your organisation and this can be targeted at any level of staff you feel is appropriate.

Why would you need training support

  • You want help in embedding a risk management culture within the organisation
  • You want your managers and staff to have a better general understanding of risk management
  • You want your staff to understand the organisations’ processes to manage risk
  • You want to start devolving risks and managing them at departmental level and need some help to implement this

Risk management is critical to the success and continuity of a business and all business, whether small or large must consider and manage risk that is relevant to them and in a way that is both practical and cost effective to them.  Whether you are submitting a new work tender or a grant application, businesses are expected to be able to identify, articulate and demonstrate that they understand and control the risks that they face within their trading environment.  We utilise and combine our skills as former finance directors, managing risk in those business in which we worked within together with our knowledge and wide ranging experience of dealing with a large variety of businesses over our careers, to be able to really help you, our clients and potential clients.

Steven Mugglestone BA FCA
,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

February 2, 2012 at 10:07 am

Top Tax Tips for 2012, without moving to Switzerland

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Top Tax Tips for 2012, without moving to Switzerland

We often get asked, “How can we save tax, without looking at any complicated stuff, and we do not want to move to Switzerland.”  We have, therefore, put a short but perfectly constructed list together of easy and straightforward things for all SME business to consider before 31 March 2012, and maybe beyond, depending on George Osborne.  It is not easy to say, but these are our top tax tips for 2012.

We, of course, can help you with any of these areas:

 “The tax relief that time forgot”: We have said it before, Click: http://wp.me/pQyUg-6j, Research & Development Tax Credit Relief is potentially available to businesses involved in most technological or scientific advancements. This is a 200% relief, with SMEs getting £2 tax relief for every £1 spent on qualifying R&D spend.  This is, therefore, one of the most valuable tax reliefs available to businesses today.

“The Return of Entrepreneurs Relief”: another valuable tax relief which can save entrepreneurs up to £1.8m of tax as part of the sale of a qualifying business or asset. Business owners should check with their advisers whether they can claim for any of the many reliefs that are available to them.

“How green is your transport”: We have said this before as well: Click: http://wp.me/pQyUg-6w, using ‘green’ company cars with low CO² emissions as well as bikes, can result in a saving on tax. Many car manufacturers are now rising to the challenge of the increased demand for green cars and there are a variety of ‘executive’ and even ‘prestige’ cars which have low emissions.
“Trust the Carbon Trust”; the Carbon Trust oversees a list of ‘green’ equipment for which businesses can claim Enhanced Capital Allowances. This includes low CO² emissions machines, screens for refrigerated cabinets, solar collection systems to heat water, and more recently, washroom hand dryers. The advantage of buying this equipment is that, subject to limits on Capital Allowances, the cost qualifies for full tax deduction against profits.

“The Final Countdown for First Year Allowances”; Buy machinery before April so businesses can claim Capital Allowances when purchasing qualifying items of plant and machinery. Subject to certain conditions, full tax relief can be obtained on purchases up to £100,000. But watch out because from April this year, the allowance is to be reduced to £25,000, so business owners need to consider the timing and may need to buy now or pay more tax later.

Maximise property capital allowance claims: from April, new provisions will be introduced to restrict claiming Capital Allowances on the acquisition of second hand buildings. This means that property owners should consider whether they have claimed everything they can on property acquisitions prior to this date. Those considering purchasing a new property should seek advice regarding the timing of this.

VAT moves from paper to online: from April all businesses will have to submit their VAT returns online and pay their VAT liability electronically. Any businesses not yet filing their VAT returns will need to register for online filing as soon as possible. While we’re on the subject, don’t forget that from this year an automatic penalty of £100 will be automatically issued if a tax return is filed late, and this will apply regardless of whether there is tax to pay or the tax due has been paid on time. Swap salary for benefits and a bike: this is becoming increasingly attractive for the majority of businesses struggling to give their staff a pay rise.  Employees can look to exchange part of their salary in exchange for a benefit which can result in tax and NI savings. This arrangement is available for a wide range of benefits from pensions to cycle to work schemes, again mention at: Click: http://wp.me/pQyUg-6w.

The new kid on the block…. Seed Enterprise Investment Scheme – April 2012 sees the relaxation of the conditions for companies to qualify for Enterprise Investment Scheme EIS status as well as the introduction of the Seed Enterprise Investment Scheme (SEIS).  Businesses should find it easier to raise finance in the future. Business owners can speak to us now to review their funding requirements and the qualifying criteria so that they are ready to act in April.

Watch this space as further things develop.  Also, if you do want to look at Switzerland …………

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

January 23, 2012 at 7:59 pm

Gut Instinct Does Not Replace Good Management Information, Just Ask the England Cricket Team:

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Gut Instinct Does Not Really Replace Good Management Information

I have seen it on numerous occasions, when appointed as a part time finance director.  The owner knows their business inside out, or so they say and believe.  The classic statement, “I know my business income and costs, a third direct costs, a third overhead and a third contribution to financing.”  So after a brief review of the actual information put together, which has never been done, my reply has been, “So what’s the other third then?!”.  “Oh.” is usually the reply.

How to ensure rock solid business decisions

The above situation is more common than you think and, at least in part, the tendency to make decisions on an ad-hoc basis is down to the general lack of good management information. If the numbers are not at your disposal, and that is financial and non-financial, then many businesses have little choice but to make decisions based on gut instinct.

Contributing to this issue is the unreliability of monthly management information, attributed to managers disregarding early warning signs of problems in profitability and liquidity.   In larger organisations with a number of senior management including sales and operational management, a classic technique in order to duck and avoid their own shortfalls and potential failings is to “dis” the management information, picking on the commas, the brackets and the spelling as evidence that it cannot be relied upon.  Nero and Rome aflame comes to mind.

Management is certainly moving from an art to a science. With the on-going computerisation of all business systems, moving on to cloud based systems allowing access and use on the go and more information becoming available to managers on which to make decisions.

With facts at hand, most business decisions become logical. For example, if you know that advertising in using email provides a 15% response rate and you convert 50% of these, as against another that generates a 5% response rate with a 50% conversion, the rational decision is to invest more in the advertising area that provides the greater return. The basis of decisions moves from gut instinct to evidenced based logic if the right reliable information is available.

What if you have poor management information?

The lack of reliable and timely management information can create many problems for entrepreneurs and owner mangers. All management training and business planning relies on being able to measure things to be able to manage.

One of the key reasons why the England Cricket have become the world’s number one test team is that they have an advanced system of information advising of how opponents react to certain styles of play and where balls need to be pitched.  This is based on reliable data from actual statistics.  And do you know what, ….. it works!

The consequences of not having reliable management information are clear – the business will not perform to its potential, because the right decisions are not being made.   The importance of Key Performance Indicators (KPIs) is vital for this success and the England Cricket team are a classic example of this.

Privately owned businesses that underperform have a significant impact on the financial well-being of the owners and, perhaps even more importantly, will create a level of stress that lowers the return for effort to an unacceptable level.

What can you see happening?

Everyone, at some stage, knows how it feels to need vital information but not have it to hand.   What may not be so obvious is whether you have information about the right things or whether the information itself is accurate.

A key part of the business planning process is to identify the business drivers, the KPIs, or those factors that drive your revenue and your major costs. KPIs can be seen as numbers but are not necessarily at all financial.  Examples include numbers of calls per hour, numbers of bums on seats, footfall, downtime, spend per head, machine hours, the weather and temperature, benchmarking against other businesses etc, etc.

It is crucial that your management reporting system measures such drivers. Being in a situation where the business drivers are not known or measured can be your warning sign. Another warning sign to note is major fluctuations between monthly results. This might indicate unreliable information and if that is the case, the warning bells should be sounding.   One example of fluctuations was order numbers, with a business having two good months and one poor.  On further review, the director responsible for sale, updated the sales brochure every three months, so was not out selling.  Easily fixed, but not discovered until the information was made public.

Interested in the issues?

Work with good business advisers, ones like McGregors Corporate, that include partners who have actually been Finance Directors and have been responsible for these improvements first hand.  Work with us and we both can obtain a proper understanding of your business issues, drivers and KPIs.

After that we can work with you to develop a meaningful business plan (which can be very simple) and forecast that you can measure against.   Being able to measure accurately and frequently the mission critical elements of your business will be the start of key improvement to your business, its profits and its cash.  Which business person does not want to see that happen?

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

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

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

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.

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

75% of Accountants Do Not Claim Enough Tax Relief On Behalf Of Their Clients ..… And R&D Tax Credits Is One Such Area

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75% of Accountants Do Not Claim Enough Tax Relief On Behalf Of Their Clients
..… And R&D Tax Credits Is One Such Area

This statistic is quite remarkable, but is being quoted around at the moment.  Rightly or wrongly, it does highlight that many accountants, whatever the percentage is, do not claim all the relevant tax reliefs that are available for their clients.  One such tax relief is R&D tax credit and this is a relief that could result in an actual refund of cash from HMRC, which in the current climate is very welcome.

In essence, Research and Development (R&D) Relief is a Corporation Tax relief that may reduce your company or organisation’s tax bill by more than your actual expenditure on allowable R&D costs.

Alternatively, if your company or organisation is small or medium-sized, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HM Revenue & Customs (HMRC), but your company or organisation can only claim R&D Relief if it is liable for Corporation Tax. Full details are available on the BIS site below and we have highlighted some of the key points in this article:

http://www.bis.gov.uk/policies/innovation/business-support/rd-tax-credits

The key headline to bear in mind is that you may be able to claim an additional 100% of your costs against your tax and potentially receive a cash refund from HMRC.  Given the statistic above, there are clearly many businesses which do not claim this and so are missing out on potential substantial cash refunds.

Many companies are claiming R&D tax credits successfully, but despite the substantial financial benefits available, many others also do not realise that they have eligible projects or worry that the claim process is too onerous and costly or, most commonly, include the R&D claim as part of their broader tax and accounting affairs without a rigorous effort to optimise its scope.  Businesses need to take advice and consider what they do as they often miss the fact that they are already incurring R&D costs for commercial activities but do not include them as such and so miss out on the relief.

Not only is the tax legislation associated with the scheme a specialised area in its own right, it is unique in that a successful claim is based on its scientific or technological merits, meaning that the claim process cannot be fully handled by tax personnel alone and we certainly work with specialist in this area to assist and our clients with the relevant claims.

Qualifying criteria

  • Attempting to achieve an advance in science
  • Resolution of a scientific uncertainty
  • Technological advances
  • New knowledge – not just for their company

Typical R&D opportunity sectors (but not exhaustive)

  • Companies developing new products
  • Digital marketing – database software development
  • Games companies / Electronics / Instrumentation
  • Food manufacturers
  • Medical devices manufacturers
  • Technology industries e.g. aerospace
  • SMEs with a reasonable number of employees
  • Software – security, performance, packages together to make a system
  • Software development

So the question really, in respect of R&D Tax Relief – is your company claiming it’s full entitlement?

·         Do you employ scientists, engineers, software developers or technicians?

·         Have you developed a new or appreciably improved product or process?

·         Have you developed software in-house?

·         Are you a Small or Medium-sized Enterprise (SME) that has subcontracted out any of the above?

If the answer to any of these questions is ‘yes’, and you are a UK Corporation Tax payer then you could be eligible to claim R&D tax relief.

The benefit can be a cash credit to your business that is worth as much as 25% of your company’s expenditure on Research and Development. In short, if you employ only four engineers or software developers performing eligible  work at £25,000 each, under the UK R&D Tax Credit scheme you could be entitled to a cheque from HMRC for £25,000 each year.

We have been Finance Directors within business and involved in similar claims from the other side of the desk and we carry out this type of review for our clients on a regular basis to ensure that we understand what they are doing and picking up where eligible R&D is being carried out to ensure that the appropriate claims may be made and where we can, cash refunds obtained on behalf of our clients.  We are always endeavouring to ensure that we are firmly in the 25% of accountants that do claim all relevant tax reliefs for their current and future clients.

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

November 30, 2011 at 1:16 pm

Join us for a free Peninsula, Times & Telegraph Essential Employment Law Event: 1st December,

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Click link for booking details: Peninsula – 1st December – Radisson Blu

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

November 16, 2011 at 9:11 pm