Steven Mugglestone

The more I learn, the less I know

Posts Tagged ‘recession

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

#Rip Off Britain, a Solution for SMEs:

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#Rip Off Britain, a Solution for SMEs

Or Accountants get away with £500+/hour charges; The Emperor’s New Clothes and why Aldi are right!

Brand Status

Nike, Adidas, Boss, Harrods, David Beckham.  They are all recognised brand names, across the globe and all we know that we pay a significant premium for that brand.  It does not, however, stop us from going out and paying the extra, for being seen owning these brand names, vanity, kudos, style, all combine to make us believe that these are quality must have items.  We do this when we also recognise that the trainers we buy probably all come from the same factory in China or wherever or that perfume or aftershave is just water, alcohol with something that makes it smell nice.  The brand is the value, when the content is usually pretty much undistinguishable.

Most people recognise this, but it does not stop them paying over the odds for the name.

Things are changing and certainly have changed in both food and many clothes ranges in shops, own brands are becoming more and more popular and most people recognise that many own brand labels of foods are actually made by the well-known brand manufacturers from the same factories and production lines.  I have certainly personally walked around two well-known snack food factories to see both main labels and supermarket own labels being made and boxed.

The Emperor’s New Clothes

I would expect everyone knows the Hans Christian Andersen story about the Emperor’s New Clothes, but as a reminder you can always read the outline at Wikipedia:

http://en.wikipedia.org/wiki/The_Emperor%27s_New_Clothes

To a business, there is a serious message here, for all of us.  Sometimes there is nothing special, nothing new, nothing powerful or exclusive, nothing that can really add value, but we are expected to believe that there is and we act accordingly, recognising but never saying, “but, the king is in the altogether!”

Aldi are helping us see what the emperor is not wearing

I do uphold and applaud the current advertising campaign for Aldi.  Two products, side by side, the main label and their own label, with the same message from the person in the advert.  They like both products the same, but the message on the screen shows us that the Aldi own label product is a fraction of the price.

Professional Support is about people and experience and not a brand

What lessons can we learn about accountants/professional advisers and what should SMEs be wary of.

Well, brand values are prevalent in the accountancy profession and the same can be said of accountants and any professional advisers.  Well, I believe that sometimes, it can.  The brand will out.  But, we fail to recognise that service businesses provide people as their product and it is really those people that make the real difference, rather than the name of business itself.  In fact, the accountancy world is changing significantly both locally and nationally, with many established older independent firms being sold to brand names, but with many brand names failing in business and failing to develop their own businesses.  Conversely, there are other independent firms, like ourselves, being developed from senior and experienced professionals from within the larger brand names.

The reason our business and similar ones are being developed is that we want to work with SME clients and help them achieve.  It is what we do and what we enjoy.  Any SME business from start-up to larger established businesses want to work with a trusted adviser, someone they can rely on and call upon for help, direction and advice.  These are people and relationship issues and have nothing to do with a big corporate brand.  We want to build a long lasting business relationship with our clients.  At the same time, our clients can rely on the fact that our partners have been through far more business and finance experience than many others.

But we need a “name” because ….

Sometimes businesses say this as they believe that they have to have a “name” and accept the cost consequences for this.  With the Emperor’s New Clothes in mind, let us have a look as some of the facts:

I am not seeking to single out any particular firm, as the same “issues and things” can be found for most, if not all of the top 10 firms or top 20 or so franchises.  The key point to raise is that the “names” are not whiter than white and sometimes do not offer a better level of service, they are prone to mistakes, errors and fraud and sometimes, these are major problems, yet we perceive that these firms are cleverer, offer better service, better value and we are willing to pay the cost.  Many SME businesses using “names” can expect to pay up to £500 and sometimes more an hour for some directors, let alone partner/owner levels, at local offices for many areas of work, yet it is unclear why a business should accept that and what extra value they are getting for this premium.

How can we establish ourselves and take on the brands

We are building a brand, as you would expect, but by a quirk of fate rather than any pretentious reasons, we have corporate in our name, although we aim to be entrepreneurial in our approach.  Being entrepreneurial and independent, however, does not mean that we do not have the same level of corporate skills, systems and experience and, sometimes, more than many of the largest of firms.

Our partners have many years-experience working both within the largest accountancy practices and as finance directors within a variety of business up to listed public companies.  We have combined these skills and approaches to really ensure that we can be a valuable and trusted adviser to our SME client base.

Our approach is always to ensure that our client’s goals are achieved but we will always ensure that this is done by first addressing their personal and family position, after that we apply our commercial acumen and experience to really help a business achieve, working with them to set the agenda for what it is they want from a business and a business life.

This is not done by delivering pages of pre-prepared generic notes but is always personal to the client and is achieved with the support and expertise from business professionals with real wide-ranging experience and expertise.  We also always aim to do this with a smile as we look to build a great long lasting relationship with our clients.  We believe that providing the same level of services expected from large national firms, delivered locally by the same quality and experienced partners is key to what will prove to be our current and future success.

These are some of the ways that we do this:

  • Our Audit Service provides quality controlled audit work using up to date systems and managed by experienced auditors, who have been involved in large complex audits covering most business sectors.  We use this insight into a business to provide a commercial view of the strengths, weakness qualities and improvements required for a business and its systems.
  • Our Statutory Accounts and Tax Compliance Service is carried out by experienced local professional staff with many years-experience working with SME businesses.
  • Our Management Information Service works with businesses to create appropriate and tailor made reporting to help manage a business and its growth.
  • Our Finance Director Service is controlled and delivered by partners who have been FDs, raising finance; growing businesses; starting businesses and turning businesses around.  This ensures that your business can be lead in the same way as many large established business, but at a cost that suits SME businesses.
  • Whether looking for finance to start, grow, acquire or eventually to retire or sell, our Corporate Finance Service ensures specialism, knowledge and trust in a business is combined.
  • When looking to acquire a business or sell or re-structure a business our Transaction Support Service will really help.  Managed by partners with real FD experience, unlike many other firms.
  • Our Specialist Personal and Corporate Tax  Service provides innovative structures and solutions, together with Probiz Tax, to really mitigate and reduce tax costs.
  • Our Business Growth Service joins with our associated partners to help improve sales, whilst managing and reducing costs as well as controlling risks.
  • Our Wealth Management Service protects an SME, their owners and their family and builds and protects their future wealth.

Advert over, but the key point is that many, newer independent accountancy firms, as well as ourselves, are being developed in the market today and these are being developed by partners and directors formerly from within the larger businesses, offering the same service from the same experienced senior team, but at a fraction of the cost.

The times they are a changing

The last 3-4 years has seen significant changes to the world of accountants, as well as lawyers, and this looks like it will continue.

Many of the large firms growth has slowed, stopped and gone backwards.  National practices have gone bust, which cannot be a great advert to support your credentials as a business adviser, yet these firms have morphed into other competitors, who equally face problems.  Some of the largest firms have completed takeovers and/or mergers which, again, have proven to be a disaster, with the businesses being acquired appearing to be works of fiction and the subsequent redundancy programs of 10% of their staffing as a direct result of bad business decisions and policies which amount to keep growing and acquiring come what may.

The loss of traditional independents

Many of the older and established firms have been lost or have been acquired by the national firms and franchises and this is largely because the existing partners could not develop a younger partnership to take on the future of their businesses and have had no choice but seek to sell to others.

As well as other companies that we know, we believe that we are amongst a new breed of commercial and entrepreneurial firms of Chartered Accountants.  We also believe that we have the experience and provide the same level of service as the largest firms supporting SMEs, but we are keeping our costs low and we are looking to pass this on to our SME clients.  Many of the larger firms serving the SME market have to service high local salaries, significant local office costs, higher national salaries and national office costs and on top of that provide returns to their shareholders.  The pressure is on for local offices to earn more and more from their existing SME clients as well as seeking more clients with high recurring fee levels.

We stick by the Aldi business model

Aldi are striving to show consumers that they are offering the same quality of product but at a fraction of the cost and they continue to shout this out, loud and clear.  To do this they also have to ensure that their own costs are controlled and the advisers and auditors that they have used are midlands based independents, so it is good enough for them.

We also work with colleagues at Expense Reduction Analysts, http://www.expense-reduction.co.uk/, to help our clients and contacts to source alternative supply chains in order to lower their costs for many direct supplies as well as overheads.  They cannot recommend a professional adviser, but would suggest that a business looks at the charges for their audit, accountancy and tax compliance costs regularly as well and seek other firms to provide professional service proposals.

Two key reasons for my own return from Finance Director back to accountancy practice are that I really enjoy working with SME business and the other is about sharing with clients the things that I know now that I did not know when previously in the profession and these are both commercial skills as well as understanding the story of the emperor’s new clothes and trying to ensure that SME businesses do not fall for it.

We, like Aldi, aim to keep saying this, loud and clear, same service, same people providing the service just at a fraction of the cost.

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.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 8:29 pm

HMRC seeking 100% penalties for late Tax Returns, resistance is useless & the world recession is not an excuse for having no money

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HMRC seeking 100% penalties for late Tax Returns, resistance is useless & the world recession is not an excuse for having no money

Some clients complain that we badger and moan (politely) at them for their tax return information, but we do this for good reason.

H M Revenue & Customs (HMRC) is now looking to introduce new increased, and some say far more draconian, penalties for late submission of tax returns and for the late payment of tax.  In some cases the penalties may be up to 100% of the tax shown on the Return.  There is, therefore, an incentive to ensure that you pay tax on time and submit your tax returns on time, which is why we carry out the gentle badgering.  Late Tax Return penalties for partnerships may also prove to be an expense for each partner as they will be charged a penalty each rather than there being one penalty for the partnership itself.

The changes are part of the numerous changes that have been made in recent years to the UK’s tax administration legislation including:

  • Increased HMRC powers for obtaining information and inspecting business records,
  • Increased penalties for errors and the introduction of rules to enable HMRC to publish the names and details of those who are charged a penalty for deliberately evading tax
  • Increased task forces and “own up and pay up” amnesties for a variety of sectors including plumbers, electricians, tutors, doctors and landlords
  • The new penalties, however, for late submission of tax returns and late payment of tax have the potential to affect the greatest number of taxpayers.

The late return penalties apply to personal, partnership and trust returns for 2010/11 onwards.  If the return is submitted after the filing deadline (31 October 2011 for paper returns and 31 January 2012 for electronic returns) then a £100 penalty will automatically be charged.

If the Return is more than three months late then HMRC may also impose a £10 daily penalty.  If the Return is still outstanding 6 months after the submission deadline then HMRC will charge an additional penalty of £300 or 5% of the tax liability shown on the return, whichever is greater.   To top it all, a further penalty can be imposed if the Return is submitted over 12 months late and this can be up to 100% of the tax shown on the return, so much for those of you that think that there is a cash flow benefit of not submitting your returns and paying your tax bills.

The penalties for failing to submit a tax return on time apply regardless of whether the tax has been paid, so paying first and then not filing the return is not really a sensible option.

For those partners in traditional partnerships or LLPs amongst you, if a partnership return is submitted late then each partner is charged a penalty.  If a partnership of 10 partners files its return two months late then the total penalty will be £1,000.   If I were HMRC, I know where I would be looking to find some money.

The late payment penalties apply to income and capital gains tax liabilities whether included in tax returns for 2010/11 and subsequent years or separately assessed, which includes amendments to returns made in 2010/11 and after.  On top of all that interest is also charged on the late paid tax.

The late payment penalties are:

  • 5% of the tax that is not paid within 30 days of the due date,
  • A further 5% of the tax that remains unpaid 6 months after the payment date, and
  • An additional 5% of the tax that is still unpaid 12 months after the payment was due.

Late payment penalties can be avoided by contacting HMRC before the payment is due to let them know that the taxpayer is experiencing cash flow difficulties and reaching an agreement as a “time to pay agreement”.  These agreements, however, are not as easy to obtain as they once were.  If the revised payment deadlines, however are not met then late payment penalties will be charged.

You can, however, appeal against the amount of any penalty and it is also possible to ask for a penalty to be reduced to nil if you have a “reasonable excuse”, whatever that is.   The legislation, however, states that having insufficient funds cannot be a reasonable excuse unless it is caused by events out of the taxpayer’s control… world recession, the Euro crisis and the continuing credit crunch seem all to be within the taxpayer’s control.

Also the reliance on another person may not be a reasonable excuse and that once the excuse ends then the penalty will be charged unless the failure to pay tax or submit a return is corrected without unreasonable delay.

If a taxpayer submits their Return late and pays their tax after the due date then both late payment and late return penalties will be charged unless they have a reasonable excuse.  Failing to comply with tax obligations will rapidly become expensive…. Resistance is useless!!

It is, however, easier to organise your tax affairs so that you get your information to your tax adviser, and reduces our moaning and badgering, to be in good time to enable your tax return to be submitted before the deadline.

Even if you are preparing it yourself, leaving it to the last minute will mean that things are done in a rush and, even with the best will in the world, mistakes can and will be made which give HMRC even more opportunities to charge tax geared penalties for errors.  You also risk suffering late payment interest and penalties if HMRC do not receive your payment in time, especially as HMRC cannot receive payments via the Faster Payments Service so bank transfers usually take at least three working days to reach them.  The “cheque’s in the post” is also not a get out and will not work.

If you are unable to submit your Return and pay your tax on time, do talk to a tax adviser and we will be happy to help in a relatively painless way and we will not moan at you too much, …… honest.

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

December 9, 2011 at 8:00 am

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.

You Have Nothing to Fear but Fear Itself

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You Have Nothing to Fear but Fear Itself

“The only thing we have to fear, is fear itself!”  (To be precise and the actual famous statement)

These are very famous words, spoken by Franklin D Roosevelt at his inaugural presidential speech and talking about the US depression and the prospect of turning the economy around.   This is looking as relevant today as it was when the words were said back in the 1930s. To succeed and change, to build a business or an economy, to be a successful entrepreneur, we need to be fearless and we need to look to build success.  Successful entrepreneurs, the Steve Jobs’ (he seemed not to even fear death), the Sir Richard Bransons’, The Lord Sugars’ did not fear the task at hand.

Yet fear itself sells; fear underpins many sales strategies; fear is the bedrock of many legal, accountancy and other professional service business sales training.  I was part of a large brand accountancy business and I was trained to sell fear.

How do we sell fear?

It is relatively easy.  Identify and find an issue or problem or something that a person loses sleep at night about.  Discuss this further and make it worse, take the issue to its most extreme conclusion, anything, the lack of growth, lack of cash, no pension, no will, a large tax bill or undeclared income.  Ensure that we can all see and understand what “could” be the result of the continuation of this situation; fines, court action, bankruptcy, failure or even death.  Make them feel really bad about something that they have created themselves.  Then, after a short period of time…… offer the solution, the solution that you knew all along.  Add on to that, the famous approaches of “you can’t do that,” “ that, sounds wrong, you need ours,” “really need to stick with this, use ours, everything else is too small, too big, too risky, wrong, etc, etc.”  Fear sells by the bucket load.

I have never at all agreed with this as a sales strategy, it has never sat well with my own positive outlook on life and the wish for my own success, my business success and success for my clients businesses and any business that I am associated with.  We, as a business, do not adopt this approach, we wish to promote, ensure and share in the success of our clients and we want to do everything we can to help promote and ensure that success.  Yes, we acknowledge problems and pitfalls and look to plan for those, but underpinning this is a positive approach rather than the negative one of fear.

As well as selling fear, we sometimes see fear as a solution to our behaviour ……

Have you heard about the man who owned a parrot ……… that swore like a sailor? This parrot was so terrible, it could swear for five minutes straight without repeating itself. One day the man finally got tired of this parrot’s horrible speech, and decided to do something about it.

He grabbed the parrot by the throat, shook it really hard, and yelled, “QUIT IT!” every time the parrot said something ungodly. But this just made the parrot mad, and it swore more than ever. Next, the man tried locking the bird in a kitchen cabinet. This really aggravated the parrot, and it clawed and scratched furiously until the man finally let him out (upon which the bird released it’s fury in a torrent of language so horrible it could never be repeated).

At that point, the man was so frustrated that he threw the parrot into the freezer. For the first few seconds the parrot made a terrible amount of noise in protest to this treatment, kicking, clawing, and thrashing about. But after a few moments it suddenly went very quiet. As the silence grew longer the man started to think that the parrot may be hurt. After a couple more minutes of silence, he became so worried that he opened up the freezer door. The parrot calmly climbed onto the man’s outstretched arm and said, “Awfully sorry about the trouble I gave you. I’ll do my best to improve my vocabulary from now on.”

Of course, the man was astounded. He could not understand the transformation that had come over his unruly parrot. Then the parrot asked, “By the way, what did the chicken do?”

Growth, the solution

Easy to say, and what do accountants know about this anyway.  Well some accountants think that they do, because they offer an associated marketing support system, but this really is only part of it.

Growth Strategy

Marketing and sales support is vital, and we have access to material and support, together with the creative expertise to help most businesses in this area, but that is really only part of the solution and a business needs to assess what it has to offer and what is its business strategy well before engage the creative juices.

Form our own business background and from working within businesses at board level, we ensure that our clients are equipped to grow their business successfully, and as our strategy we will also look to include this as a formal product and service area of our own.

Start with the sales strategy

This is addressed by identifying, promoting and assisting with the following:

  • An understanding of leadership with the vision and missions of the business, in order to effectively lead growth
  • An understand of the business theory (McKinsey) to effectively lead and evaluate growth
  • An understand of the key aspects of organic growth, the market, the business proposition, the people, the tools and the systems and processes, together with appropriate funding
  • An understanding of the key skills of account management, key client management and how to retain and expand existing relationships and value
  • An understanding of key marketing techniques and how to win new work and new clients and how to lead a sales strategy
  • An full understanding of how to create and fully utilise a business plan to set the agenda for a business and to use that plan as a road map and driver for success
  • After all of this we can then look at the creative marketing, sales and support services available through our associates to promote and accelerate this area

Build on to this, skills and approach of the Finance Director

I have touched up this before in detail as a former Finance Director, who will look to set areas for improvement covering support, operational and strategic areas and will look to structure the improvements in these areas, to be able to drive the business, with an article called “How an FD Drives a Business when sometimes Accountants are just catching up,” on http://wp.me/pQyUg-j.

The key points to this, in my opinion can be seen as funding, operational improvements and controlled delegation.

Funding is vital to any business, but the funding needs to be appropriate to the business and for appropriate uses.  One key area that we see time and time again is a business losing control of their working capital and short term cash flow.  This is in essence the life blood of any business.  We always ensure that our client consider and implement appropriate strategies for the control of working capital, be it stock, purchases, creditors, taxation and cash flow.  A key tool is a 13 week rolling cash flow, which seeks to ensure that a business has a full understanding of the peeks and troughs of cash requirements to ensure that it is able to deal with this area.  Another key positive outcome of this tool is that for many businesses, it also allows the business to look to channel cash to appropriate growth areas and growth strategies in the shorter term.

Without including another chapter, then there is the external funding and the growth by acquisition or sale, the banks, the grants, the business angels and the private equity investors.  As being part of a number of organisations supporting these areas in the midlands, as well as helping fund new start-up businesses, buying and selling private SME businesses and floating and managing public company share issues, as both finance directors and as advisers, we have access and a little bit of expertise in this area as well.

Operational improvements can be assisted with both key performance indicators, KPIS and benchmarking with other businesses.  This allows an understanding of what are the key areas of business performance that have the most significant impact on its success.  Benchmarking is not about either complacency or fear and worry that your business is either doing any better or worse than others, it is an understanding that if your performance ranks as low compare to many similar businesses operating within your industry, then it points to something that you doing wrong and helps to start to correct that performance.

Aligned to this is controlled delegation or internal controls.  These are not considered for the sake of it.  Controlled delegation is about identifying the skills and attributes of a business team and allowing individuals with the most appropriate skills to work in areas most suited for those skills, whilst doing this under a documented structure and system that everyone understands.  An example of this is a business that engaged a new part time finance director, adopting the same approach to business that we encourage and utilise.  That finance director looked at some numbers and KPIs etc and this included monthly sales patterns.  The patterns showed two months of good sales and one month of poor sales and this was consistent for quite a long period of time.  When looked into and queries further, the reason was that the main owner/director, who was also the key person for sales, re-wrote the company catalogue every three months and so was not engages in selling.  A relatively simple solution, with appropriate controls and checking ensure that another member of staff was engaged in this role and the business increased sales by 20% in the following year and profits and cash accordingly.

Add on appropriate tax planning support and additional cash

As a business grows and becomes more complex, bigger and with more profits, so can the complexity of its tax planning and more complicated and expensive areas are available to support that business and its owners.

There are, however, still simple and legal ways to ensure that new and growing businesses do not give away profits or incur large tax bills.  We work with our clients to ensure that these areas are all considered and adopted accordingly.  Without going into detail, these are few:

  • Consider the need to incorporate at an early stage or the valuable tax breaks later if you choose not to,
  • The use of unincorporated businesses, such as partnerships and limited liability partnerships to grow a new area of a business, a new market, a new product a new geographical area etc, to share in the tax breaks of incorporation of these areas at a later stage,
  • A review of tax breaks available including the still over looked capital allowances within properties, as well as a business costs of research and development where even more tax incentives are available, including tax credits against other tax areas
  • The use of pensions such as SIPPS, SSAS and ORBS to increase wealth, lower a tax charge, finance and acquire properties and even provide cash for the business to utilised to grow further.

Our own view is that businesses need to be fearless to be successful and we embrace that approach.  We as a business always aim to be positive to ensure that our clients succeed and grow, which we adopt for ourselves.  This does not mean that we do not plan for the problems, the downsides, the tax issues, the cash shortages, the plan Bs, the risk registers.  It is just that share in our clients’ vision to want to aim for the stars.  I really like the saying that if you aim for the moon and miss, you will at least end up in the stars, and that it the philosophy that we encourage and promote.

Going forward, our own business is in its own way looking to help ensure that businesses can grow in the midlands region.  In the new-year we are aiming to create cost effective business groups in the Birmingham, Nottingham and Leicester area to share in the skills that we have touched upon in this article as well as introducing even more cost effective monthly accounting support to smaller businesses by use of new cloud technologies, after recently introducing our 33% reduction in audit and accounts costs to established businesses.

As Roosevelt famously said himself and we are embracing, “The only thing we have to fear, is fear itself!”

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 9, 2011 at 1:54 pm

23 things to expect from your advisers in a recession

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23 things to expect from your advisers in a recession

Recent research shows that 82% of business owners want more support from their accountant or advisers to help them beat the recession. All good accountants and advisers understand this and have already geared themselves up to be able to deliver it.

This simple checklist has therefore been independently produced to help you ensure that your accountant gives you all the proactive support and guidance you need to beat the recession.

All you need to do is this… tick all those areas where you are completely satisfied that your accountant or adviser is already giving you all the help you need and want. And if the score is not 23 out of 23, ask your accountant how they can give you the extra help you need in the areas you have not ticked.

How a good accountant can help you to beat the recession.  Are you satisfied with what your accountant is already doing for you in each area?

General support you should expect

  1. Diagnostic review and report to identify the key options for strengthening your cashflow
  2. Explore the 20 sources of cash to see which have the most potential for you
  3. Give you a performance measurement and improvement system – and help you summarise everything that really matters on a Balanced Scorecard or One Page Plan – to give you all the information you need to make better decisions and get better results
  4. Help you understand and manage your breakeven point so you are more able to survive falls in demand
  5. Benchmark you against others in your industry to identify the areas where you can most easily improve
  6. Create an initial improvement action plan covering all the key areas listed here
  7. Attend regular meetings with you, and use a BoardView style methodology to help you continually update your action plan in the light of new issues, information and opportunities as they arise
  8. Produce regular cashflow forecasts to ensure your plans can be funded & you do not get into financial difficulties
  9. Give you free access to a library of relevant “Beat the recession” resources eg videos, software, reports etc

Strengthening your cashflow by making more profitable sales & getting paid more quickly

10.  Identify which of the 8 key profit drivers has the greatest potential for you
11.  Review the 23 profit strategies that lie behind the 8 profit drivers – prioritise and action them
12.  Identify and manage your profitability by customer and/or product line – so that you can build on your higher profit areas and deal with your lower profit areas
13.   Analyse your sales pipeline – & use sales improvement software to identify how to drive sales up14.  Evaluate alternative pricing strategies using software – since getting your pricing right is usually the fastest and easiest way to increase the profitability of sales
15.  Review the 43 ways to improve your debtor collection

Strengthening your business and personal cashflow by using better tax planning to…

16.  Pay no tax on the profits from new products/services/divisions for 5-10 years
17.  Significantly reduce your tax when extracting profits from your company
18.  Cut your corporation tax bills to zero (or close to zero)
19.  Cut your personal income tax bills to zero (or close to zero)
20.  Reclaim much of the income tax you paid in recent years
21.  Halve your stamp duty and capital gains tax bills – and perhaps even eliminate them
22.  Claim your full Tax Credit entitlement (it is surprising how much you can claim with specialist help)
23.  Use IHT and care home fee planning to put extra cash in your bank during your lifetime

All of these tax planning opportunities are legal – and all are possible in certain circumstances. If your accountants tell you that they are not possible, ask them to clarify exactly what they mean. Is it (A) they are fully aware of the tax strategy being referred to and know for a fact that you do not meet the qualifying criteria, or (B) they are simply not aware of the specific tax strategy being referred to.

If your accountant cannot help you fully in all of the above 23 key areas, or you want a second opinion for free from a professional accountant who can, please contact us.

There will be no cost or obligation. And even if you go on to ask us to help you with something, from the list above, you can still stay with your existing accountant for everything they currently do with you if that is your preference.

To find out how we can help all SME businesses with this real pro-active support, experience and background feel free to contact me at steven@mcgregorsbirmingham.co.uk or call us on 0845 519 5659.

Written by Steven Mugglestone

May 10, 2010 at 9:28 am