Economic Update

2011 was the year the UK economic recovery ground to a halt. Economists forecasting for the year had underestimated the damage suffered by the credit crunch, and troubles mounted in the Eurozone, which meant a series of continuously downgraded or reconfigured forecasts.

Inflation crept up throughout the first three quarters of the year, constricting household’s already squeezed budgets, restricting their spending and their ability to pay down debts.

Meanwhile, businesses struggled to survive, as cashflow continued to cause problems, and banks restricted their lending to businesses further. Those that have survived displayed a level of ingenuity, flexibility and grit that will stand them in good stead for the year to come.

November saw the Chancellor’s Autumn Statement measures announced, and while it was the draft clauses of the Finance Bill that revealed tax changes, the Chancellor did reveal a series of initiatives, predominantly designed to ease the pressure on businesses.

2011 was also the year of the Eurozone sovereign debt crisis, and as we step into 2012 policy makers continue to grapple with the consequences and solutions, as credit rating downgrades continue to happen and increase the  interest paid on sovereign debt.

 Looking forward

Unfortunately we can’t wave goodbye to the conditions we face in 2012, and the likelihood is that the situation is going to get worse before it gets better. The next twelve months will be important for everyone, and while we can’t predict what will happen in the Eurozone, we can at least put some damage limitation measures in place.

Forecasts for the following metrics will undoubtedly change as 2012 progresses, but here are some key economic indicators, how they are faring now, and common predictions over the next few months.

Read on to find out how we can help you to prepare for the coming months.

 Key metrics

 Jobs and unemployment

The most recent Office for National Statistics (ONS) unemployment figures showed that UK unemployment increased to 2.68 million in the three months to November 2011, the highest level since 1994, and a total of 8.4 per cent of the population.

Youth unemployment has been the most worrying statistic though, as it hit 1.04 million, and the highest since records began in 1992.

Common predictions are that the number of unemployed people will continue to rise throughout 2012, particularly as private sector job cuts kick in. In fact, the Chartered Institute of Personnel Development (CIPD) predicts that unemployment will peak at 2.85 million in 2013, before falling back again.

Gross Domestic Product (GDP)

Forecasts for UK GDP, which refers to the market value of all final goods and service produced within a country in a given period, were continuously downgraded throughout 2011. And while forecasters seem to have recognised that they were over-ambitious with their predictions, those for 2012 are still being accused of being over-generous.

In November the Office for Budget Responsibility (OBR) forecast 0.7 per cent growth in GDP in 2012, which was viewed as low compared to outside forecasts of 1.2 per cent. But more recent forecasts claim that any growth at all over the next 12 months would be a success.

Inflation

Inflation began to fall back in October 2011, and has been falling ever since. The Consumer Price Index (CPI) now stands at 4.2 per cent, and this falling streak is expected to continue, and act as a platform for consumer confidence and recovery.

January saw the UK’s leading energy providers reduce their gas and electricity prices, which will also contribute to this. This is promising, and the Bank of England expects a sharp fall in inflation during 2012, particularly after factory gate prices dropped by 0.2 per cent between November and December in 2011.

Interest rates and Quantitative Easing

The Bank of England’s Monetary Policy Committee (MPC) reduced the base interest rate to a record low of 0.5 per cent back in March 2009. It has stayed there ever since, despite various speculation, and some forecasters claim the rate will remain that low until 2016.

The fact that inflation is falling back means that the MPC is under less pressure to push rates up, and while savers are losing out, the threat is that pushing the rate up could push home owners into trouble and result in more repossessions.

Meanwhile, the Bank’s quantitative easing (QE) scheme, first introduced in March 2009, has since increased to £275 billion, the last instalment of which was introduced in October 2011. Some economists are expecting to see a further boost as early as February, a move that has been favoured by business groups.

Exports

Exports are expected to play an important role in our economic recovery. Recent statistics from the Office for National Statistics (ONS) show that the UK’s trade deficit fell between October and November, meaning exports to non-EU countries fell and imports from non-EU countries rose.

But on a positive note the Government is recognising this, with new initiatives to help medium-sized businesses to export into new markets. Business groups are calling for a national export drive this year, and economists claim that exporters must look to new markets in order to give the UK economy the export boost that it needs.

Protecting your business

While the overall outlook for the next 12 months is, for most, subdued, there are always ways that you can mitigate any potential negative impact or even turn the situation into a positive one. The likelihood is that if your business survived the last few years, you are in a good position to take advantage of the opportunities that arise at times like these.

Damage limitation

As the economy remains at a standstill, there are measures that you can take to limit any damage caused to you and your business. Suggestions include:

Cashflow

Keeping on top of your debtors is vital, particularly as many businesses are struggling to keep afloat. But it is also important to remember that this works both ways, and that your creditors will need to be paid on time too.

Keeping plans up to date

You should review and revisit your business plans frequently at times like these. Circumstances can change suddenly, and you may find that what was appropriate at the start of the year is no longer relevant six months later.

Flexibility

It is also important to remain as flexible as possible; you never know when you may have to suddenly change tack and being agile means that you may be able to take advantage of any sudden opportunities that arise.

Contact us to find out how we can help you to mitigate damage done to you and your business.

Business opportunities

Marketing exposure

Opportunities could be as simple as making the most of the fact that your business has survived your competitors by shouting about it through your marketing channels. In particular, making the most of the cost effective, and successful marketing approaches that the internet offers, including social media and blogs.

Learn lessons

You can learn lessons from those that have been less successful during the current economic climate. Observe what went wrong for them and ensure that you do not make the same mistakes.

Buying new businesses

The downturn could provide you with the perfect opportunity to expand through the acquisition of a business. You have obviously led a successful business through hard times, and there is no reason why you could not do the same for a new business.

We can help you to identify and grasp any opportunities that could help you to prosper over the coming months. Please contact us to find out how.

The Striking Off or Liquidation of a Company

The striking off or dissolution of companies is changing.  There are two points that need to be borne in mind: one the ESC 16 concession and the other the Bona Vacantia concession.

a)                  ESC 16

The concession in ESC 16 is likely to be replaced by a statutory instrument (“SI”) for distributions made from companies on or after 1^st March 2012.  The SI will mean that on dissolution of a company only the first £25,000 of the amount paid out will be subject to capital gains tax; if capital is greater than £25,000 all is subject to income tax. 

If the income tax liability is going to exceed the capital gains liability then you should consider a formal members voluntary liquidation (MVL) which ensures capital gains tax is payable on the full amount paid out, not just on the first £25,000.

Remember entrepreneurs’ relief could also be available which would reduce the capital gains liability to 10% of the gain and would make the capital gains “option” or MVLmuch more attractive.  It should be noted that if the shareholder is eligible for entrepreneur’s relief then capital gains tax is likely to be favourable in almost all situations.  Distributions can be made over multiple tax years further increasing the tax relief available.

b)         Bona Vacantia

The ESC concession has resulted due to a technical problem that if a company returns its share capital to the shareholders, without a formal winding up, this is technically, in law, an unauthorised distribution and those assets can be recovered by the Crown under the doctrine of bona vacantia. To get round the problem it was then agreed that HM Treasury would put in place another concession under which it would not pursue its right to recover the ‘unauthorised distribution’ as long as the amount paid out to the shareholders was not more than £4,000 which was at the time understood by HM Treasury to be the cost of a formal liquidation.

This concession was removed in October 2011. 

So where does that leave companies wishing to distribute their reserves or groups wishing to restructure.  The answer is a formal liquidation orMVL. 

There are of course other benefits of going the formal liquidation route for example assets can be distributed in specie eg book debts, shares in subsidiaries etc.  Shareholders can rest assured the distribution will not be overturned and they are no longer responsible for the governance of the company.

For further information or a quotation contact Lynn Gibson at lynn@gibsonhewitt.co.uk or Robert Hewitt at Robert@gibsonhewitt.co.uk or call on 01932 336149.

Effective sales planning

The ability to predict realistic sales levels is essential for a business. Not only does it enable you to identify and deal with any possible cashflow issues, it also makes it easier to plan for growth, to exploit openings in the market, and to manage operations and production.

A sales forecast provides a business with just such a capability. It sets out the level of sales that a business can reasonably – a key word, here – expect to achieve. 

“The more detailed a forecast, the more accurate and practical it will be.”  

Preparing the ground
To create an accurate and working sales forecast, a business needs first to assemble some basic information covering past sales. This information should include:

• The numbers of customers gained and lost in the last year
• The (seasonal) periods (if any) when sales rise or dip
• The value of sales made to each customer
• Specific product or service sales that are growing, flat-lining or declining
• The impact of national economic circumstances
• Cyclical purchasing trends
• One-off events (bad weather, for example)
• The impact of particular measures that have been taken to push sales, such as a marketing campaign.

Analysing the sales figures for the past year will allow a business to spot purchasing trends among customers, and to find out whether those customers that have been making significant investments intend to spend in the same way during the coming year.

But don’t limit your analysis to the income generated by those sales. Take a look at the volume too. This will give you vital information about possible production levels in the future, and about the costs that such operational matters as delivery, stock holding, and employment resources will involve.

 Accounting for changes in circumstance
It is unlikely that the months of the year ahead will exactly replicate the year that has gone. A business, therefore, must make certain, well-informed estimates, and assess any possible changes to circumstances that will affect the volume and value of sales. Such estimates, based on both past sales and on any realistic ambitions for growth your business has, will create the framework for the sales forecast.

There are a number of areas where you must take a balanced view of probable developments. These include: 

• Judging market trends (is the overall market likely to grow or contract; is your share of the market set to expand or decline?)
• Calculating the effect of any planned changes to the business (if you are going to be putting up prices, for example, you will need to examine the impact this will have on both sales values and sales volumes)
• Looking at the effect of staffing changes (will you be investing in more sales staff
• Assessing the impact of any changes to the products or services your business offers (some new products may take time to achieve their potential sales levels; some products may be approaching the full limit of their sales reach; while sales of other, older products may already be on the point of falling). 

What about seasonal trends? Factor in surges and falls in demand. This will be critical when it comes to the delicate balance between income, paying supplier bills and stock holding (if a sales forecast isn’t accurate you could find yourself with too much stock on your hands but without the customers to buy it). 

It is important to assign a definite value to each of these assumptions if the sales forecast is to be meaningful. 

Creating a sales forecast
Step one in drawing up a sales forecast is to estimate market demand. Market demand for a product or a service is the total volume that would be bought by customers, in a defined market or geographic area, and in a defined time period. 

Step two is to work out the share of market demand that a business actually commands, be it on a national, regional or local scale. For example, if a local bicycle firm believes that the overall bicycling market in the town in which it operates is £400,000 and its income is £80,000 per year, then it has £400,000 divided by £80,000 or 20 per cent of the market. 

Step three is to establish an expected level of business sales based on a marketing plan. Will, for instance, that bicycling business be developing its website; will it be focusing on one product line (off-road bikes) at the expense of another (thin-wheeled track cycles); will it be targeting increasing consumer awareness of ‘green’ travel; will it be attempting to spread its sales across a broader area of the year; will it be dropping its prices in order to lessen the impact of dead stock; will it be changing its stock management so that the shop is either extending or contracting its range; will it be questioning its dependence on the sales of children’s bikes? 

The sales forecast
The more detailed a forecast, the more accurate and practical it will be. 

It can help, for example, to separate products out by market, area or customer. It is also very useful to calculate the percentage chance of any given sale actually occurring, as this will have an impact on its predicted value. Bear in mind that the likelihood of making a sale to an existing customer is higher than converting a new customer, so the chance of the sale happening in the former case is correspondingly higher too. 

Specifying the types of product each customer may purchase will give a business the opportunity to predict possible supply issues and anticipate both potential shortages and gluts, and to achieve a better balance between stock build-up and sales. 

It is important to bear in mind that a sales forecast is not a sales target – a figure aimed at defining, or encouraging, the sales effort over a given period – or a sales budget – a figure used to cover current purchasing, production and cash-flow decisions. 

The secret is to focus on the sales you actually believe you will make rather than on an ambition for sales. Otherwise the forecast becomes a marketing plan, establishing goals instead of concentrating on the specifics of sales based on particular circumstances. Remember that the purpose of the forecast is to help you gauge sales on a month-by-month basis and to help you control cashflow. 

Realism
It is absolutely essential to make sure that every figure is based on realistic assessments and not on projected or hoped-for increases in sales. While optimism has its place, over-estimation of sales will end up burdening your business with expectations that could harm, not enhance, its performance. 

For this reason, all the figures should take into account what the business is capable of achieving in terms of productivity and capacity. If you are not planning on taking on more staff, don’t assume that productivity will rise by a significant amount. If you are not going to invest in a new plant, don’t assume – whatever the level of demand in the market – that output is going to outstrip your firm’s ability to manufacture. 

Once the sales forecast is determined, try to avoid the temptation to tinker with the figures too much (although some adjustments may need to be made if predictions appear to be off the mark). Comparing actual sales figures with the forecast will give you an accurate indication of how well (or not) the business is performing. It will also allow you to make adjustments to operations and to formulate plans – a boost to marketing spend, a switch to alternative sources of custom, a change in pricing policy – for correcting any downturn or for exploiting any upturn. 

It is vital also to consult with your sales staff as you draw up the forecast. Allocating them targets they know to be impractical will be counterproductive. And for an objective viewpoint, why not get the advice of your accountants once the forecast is complete – this can offer a very useful counter to any rosy-tinted (or self-effacingly modest) assumptions on your part. 

Summary
Sales forecasting is crucial to a business. It is both an aid to growth and an early warning sign that problems need to be addressed. The watchwords are realism and a willingness to adapt to the information the forecast may be giving you about the performance of your business. 

If you would like our help in constructing the sort of sales forecast that will give your business the best opportunities for success, please don’t hesitate to contact us.

BEWARE – Newly incorporated Businesses

BEWARE – newly incorporated businesses are being targeted by companies offering to check validity of VAT numbers for due diligence purposes as required by European Directive for a fee.

Whilst it is correct that businesses making supplies to VAT registered customers in other member states have a responsibility to verify the VAT numbers provided.  Please note that there is no requirement to pay a registration fee as the numbers can be verified on the Europa website free of charge.

Successful Retirement Planning

Many people spend time thinking about what retirement might look like financially, and this is particularly important now, especially given the current state of the markets, the economy and interest rates. Pension funds have been depleted by higher tax charges, reduced capital values, diminished rates of return and increased longevity. It is important to look at how much you need to save to secure your desired income and how your saving can be optimised for tax purposes. Time for a review? The applicable laws and tax regime change over time, as do economic circumstances and market-based solutions. Retirement plans should be reviewed periodically to check their adequacy. 

“Taking into account the impact of the recent financial crisis, no one’s retirement planning looks the same as it did a few years ago.”

Will the state pension suffice?

Even if it is not currently top of your agenda, being able to retire when and how you would like, is sooner or later likely to be one of your most important financial objectives. But achieving this goal takes planning and perseverance. You could spend a third of your life in retirement. Will you find those years the golden times we all dream of, or a constant struggle to pay the bills?

Your state pension is worth about £5,300 at current rates, assuming you have a full national insurance record. For those reaching state retirement age from6 April 2010, this requires 30 years’ contributions. If you have not yet retired, we can help you check your record and see if any gaps can be filled. A review of your state pension entitlement will also indicate what you may expect to receive as state second pension, SERPS and graduated pension.

The state retirement age is also changing with the state retirement age for women rising in stages from 60 to 66 between 2010 and 2020. This will not affect women born on or before5 April 1950, who can still claim their state pension at 60. Women born after5 March 1954will have a state pension age of 66.

The state retirement age for men is changing between6 March 2019and6 March 2020. This will not affect men born before6 December 1953who can still claim their state pension at 65. Men born after5 March 1954will have a state pension age of 66.

The state pension age may be further increased after 2020 based on life expectancy.

In 2010, the new coalition government announced that the state pension will in future increase by the highest of price inflation, earnings inflation and 2.5 per cent.

According to Government estimates, the gap between how much people are saving and how much they need to save to ensure a comfortable retirement is over £57 billion. It believes that 13 million people – nearly half the working population – are not saving enough for their retirement.

If you would like us to evaluate your retirement planning please contact us. 

Large contributions 

There has been a significant change in the rules relating to large donations to pension funds.  The new rule imposes an annual contribution limit of £50,000 to a pension fund with effect from6 April 2011. This is a massive reduction from the previous rate of £255,000. 

In occupational schemes, the limit applies to both the employer’s and employee’s contributions. For final salary or defined benefit schemes, the contribution limit applies to the increase in the value of the member’s pension entitlement value during the year. In such an employment, a significant pay rise can result in a significant increase in such entitlement value which could be caught by these new provisions. 

If you make a contribution above £50,000 or otherwise have your pension entitlement value increase by this amount, it may be possible to claim further relief under a transitional provision or by using an unused deemed allowance from one of the three previous years. 

If you do make a pension contribution above the limit, you will still get tax relief on the whole contribution at your highest rate of income tax. But you will also incur a tax charge on the amount of the excess. 

This large reduction in the annual limit replaces the previously announced provisions of restricting tax relief for those who earn more than £130,000. That provision has now been abandoned. 

Salary sacrifice 

Salary sacrifice has been much in the press these last few years, but this remains a tax-efficient way of providing for your future. This approach saves both the employer and employee money through reducing national insurance contributions. This can save the employee income tax too. Even so, taking a reduction in take-home salary now in exchange for a longer-term benefit is not everyone’s first choice and should only be used in conjunction with proper financial planning. This technique may not be effective for high income individuals. 

Self-Invested Personal Pensions (SIPPS) 

SIPPS allow the freedom to select the allocation of your pension fund investments. This pension vehicle is regarded as attractive to many as a result of this investment flexibility. Subject to approval by the SIPP provider, SIPP investors can choose what assets are bought, leased and sold, and when those assets are acquired or disposed (although certain items, like classic cars and residential property are inadvisable because they are subject to heavy tax penalties). The investor may also enjoy ownership of the assets via an individual trust, so long as the provider or administrator is listed as a co-trustee. Potentially, SIPPS can even borrow 50 per cent of the net value of the pension fund to invest in further assets. We are happy to discuss this option with you. 

The capping of the lifetime allowance 

The lifetime allowance of pension contributions is now capped at £1.8 million until5 April 2012when it reduces to £1.5 million. (The government had previously announced that the lifetime allowance would remain at £1.8 million until 2016.) 

This reduction in the lifetime allowance does not affect the upper limit of trivial pension. Before6 April 2011, the trivial pension limit was 1% of the lifetime allowance. From6 April 2011, it is fixed at £18,000. 

Retirement investing alternatives?

For those who want an alternative to pensions, or to not rely on them entirely, the alternatives are almost unlimited. Common savings and investment vehicles include ISAs, equities, bonds, insurance policies, property portfolios and fine art or other valuables. However innovative or unusual your retirement planning, it should stand the ‘reality and adequacy test’. Each of these alternatives have differing tax treatments so taking tax into account is an important aspect

Top-slice relief and the Investment Bond 

Investment bonds remain much underused in retirement planning, despite having been around since the early 1970s. Some see them as complex, but they offer unique opportunities to aspiring retirees. Because they are offered by life assurance companies, the investment bond is considered a life policy and is not subject to capital gains tax, instead, a tax liability arises on a chargeable event, such as the death of the owner or maturity. You can take a 5 per cent tax-free withdrawal every year, and excepting the events just mentioned, this can be carried forward for up to 20 years. 

It should be noted that this arrangement is a deferment of tax, not an exemption from tax. There is a tax advantage if you reasonably believe that you will be paying income tax at a lower rate at the end of the 20-year period. 

A higher-rate taxpayer would pay 20 per cent of the total gain (or 20 per cent on withdrawals above 5 per cent) with an additional rate taxpayer bearing 30 per cent instead, but there is no further tax liability over and above this. With foresight, a taxpayer bearing either 40 per cent or 50 per cent tax on income could enjoy 5 per cent tax-free withdrawals while working, and then on retirement, if in a lower tax bracket, use top-slicing relief to withdraw large sums without incurring a tax liability.

Further, a policyholder in a higher tax bracket can transfer ownership of the bond to a lower tax-paying spouse. Because this transfer is made by deed of assignment, it is not a chargeable event. Sound advice is key to long-term Investment Bond planning. 

How much capital will your business realise? 

Many expect their business to provide a substantial injection of capital into their retirement pot. However, before you bank the proceeds from sale there may well be capital gains tax to consider. Entrepreneurs’ relief reduces some or all of the business gain so that the net tax payable is only 10 per cent of the chargeable gain. Entrepreneurs’ relief provides a reduction in capital gains tax on the disposal of an interest in a business or business asset(s) up to a maximum of £1,800,000 relief. Advantageously for some, it has no minimum age requirement, and the business need only meet the qualifying conditions for one year. It replaced indexation allowance and taper relief, and now has a maximum lifetime allowance for gains of £10 million. 

If your retirement will coincide with the disposal of business assets and your planning has not yet taken into account the tax impact, please discuss this relief and your tax planning with us.

Does the Bribery Act affect you?

The Bribery Act 2010 came into force on the 1^st July 2011 making it a criminal offence for an individual or commercial organisation to offer or receive a bribe to bring about or reward the improper performance of a function or activity.

The legislation targets the prevention of the cases of large scale corruption and bribery, involving large multinational organisations that occasionally appear in newspaper headlines and at times lead to custodial sentences for top executives. The Act goes further as it also aims to stamp out facilitation payments that are often paid to low ranking officers (particularly in developing countries) to facilitate the smooth and expedient processing of a service. This is something that has implications for any organisation that operates overseas.

The challenge is enhanced by the fact that an organisation may be liable for bribes paid by its agents and joint venture partners, even if made without the company’s knowledge. 

However, even if your business is entirely focused within theUKcaution is required. Corporate hospitality is not affected so long as it is proportionate and reasonable. 

The principles of the Act are:

• Proportionality is the key to ensuring compliance
• Top-level commitment to a zero-tolerance on bribery and communication of this to staff, customers, suppliers etc. Further a senior executive of the firm should be appointed to have responsibility for bribery prevention.
• Regular risk-assessment of the nature and extent of exposure to potential external and internal bribery risks
• Due diligence – a thorough examination of third parties acting on the organisation’s behalf and their trading partners
• Communication of these measures – including training so that bribery prevention policies and procedures are understood throughout the organisation, and the likelihood that all types of employment contracts will need amending to refer to bribery in the context of gross misconduct/termination
• Monitoring and review all of the above principles regularly. 

In order to minimise the risk of being on the wrong side of the Act, companies should put in place: 

• Whistle-blowing procedures (setting out how staff raise concerns about bribery and request advice and support)
• Prevention policies to cover financial and commercial controls (invoices, remuneration)
• Prevention policies to cover rules on gifts, hospitality (a reasonable amount of corporate hospitality is still permitted), promotional spend/sponsorship (including charitable donations)
• Procedures on recruitment (including work experience) and discipline/grievance that include anti-bribery measures
• Details of how anti-bribery measures will be enforced. 

How to stay competitive

Most businesses come into being because an entrepreneur has identified a niche in the marketplace – and in the early months or years there may be relatively little pressure from competitors. But your very presence in the marketplace invites competition, and before long you find yourself in a tightening market with competitors, large and small, snapping at your heels. How do you stay ahead of them?

Market drivers

Markets rarely afford you the opportunity to rest on your laurels. The key to remaining competitive is knowing the principal drivers in your marketplace and developing and positioning products and services accordingly.

In essence, this means keeping one eye on your customers or clients and striving to delight them, and keeping the other eye on your competitors and striving to outshine them.

Customer focus

Successful businesses know their customers, understand their present needs, and successfully anticipate their future needs. Customers and clients are brought into active partnership with a goal of total customer satisfaction. Their level of satisfaction is constantly measured and their complaints and suggestions taken seriously.

Leading edge businesses strive not to meet their customers’ expectations, but to exceed them. At the very least, this means excelling on quality, delivery, and price, often in that order.

But many businesses these days regard these as the minimum requirements for surviving in the marketplace. To gain a competitive edge you need to continuously introduce innovative products or services customised to meet specific customer or client needs.

Innovation

As your market niche becomes crowded with competitors it becomes harder to maintain your differentiation. When this happens you have to continuously reinvent your market niche through innovation:

• Create a corporate culture that encourages and rewards innovation
• Whenever you introduce a new product or service make sure your development team are already working on the next one
• Keep one eye on new technologies, developments in legislation, etc. and learn to exploit them to gain a competitive edge
• Constantly strive to improve speed to market
• Do not reveal future developments to the marketplace any sooner than you need to – keep your competitors in the dark for as long as possible

To drive innovation, you need a constant stream of ideas:

• Listen to your customers – their complaints as much as their suggestions
• Talk to your suppliers about their future developments
• Monitor your competitors’ future plans
• Encourage your employees, especially those in direct contact with customers or clients, to suggest innovations
• Facilitate public visits to your premises and listen to the feedback
• Visit other businesses, even those in different sectors, to encourage lateral thinking

Know your competitors

One thing is certain – if you are successful in developing products or services that delight your customers or clients, competitors will appear like stars on a clear night. Therefore, the more successful you are, the more adept you will need to become at monitoring your competitors and anticipating their next moves.

First make sure you know who your competitors are:

• Direct competitors – businesses that compete with you head to head
• Indirect competitors – for example, a nightclub that might tempt customers away from your restaurant
• Potential competitors – companies that might move into your market in the future

Assign people to monitor them constantly, and gather as much information on their activities as possible.

SWOT the competition

A useful tool for staying ahead of your competitors is a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. First analyse your competitors’ strengths and weaknesses in areas such as price, added value, customer service, location, management expertise, reputation, convenience, skills base, advertising, and marketing, and compare them with your own. Try to find ways to turn their weaknesses into your strengths.

Then look at how well placed they are to respond to various threats and opportunities. These are usually factors outside their control such as developments in technology, changes in legislation, or new entrants into the marketplace. Look for ways to turn their threats into your opportunities.

Never take your eye off the ball as far as your competitors are concerned – and never underestimate their potential to wrong foot you. Whether you are watching them or not, you can be sure they are watching you!