gibsonhewitt

Economic Update

gibsonhewitt — Fri, 24 Feb 2012 10:43:31 +0000

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

gibsonhewitt — Thu, 19 Jan 2012 12:50:06 +0000

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

gibsonhewitt — Mon, 21 Nov 2011 13:22:57 +0000

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

gibsonhewitt — Tue, 15 Nov 2011 12:24:21 +0000

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

gibsonhewitt — Tue, 11 Oct 2011 12:20:46 +0000

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?

gibsonhewitt — Tue, 11 Oct 2011 12:09:21 +0000

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

gibsonhewitt — Tue, 20 Sep 2011 12:11:04 +0000

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!

Insurance and safeguarding your business

gibsonhewitt — Mon, 19 Sep 2011 12:58:18 +0000

Business insurance: an introductory guide

Adequate insurance is fundamentally important for a business. And in many cases, it is actually a legal obligation.

What follows is a brief guide to the types of insurance a business must have and the types of insurance it might consider desirable.

Mandatory and optional

Essentially, business insurance falls into two categories: the compulsory and the optional.

There are three types of mandatory insurance. Any business that employs staff must have employers’ liability insurance. Any business that runs company cars or vehicles must have motor insurance. And any business that operates in certain professions, such as the law, must have professional indemnity insurance.

Of course, a business will also want to look at protecting itself with other, non-compulsory insurance. These might include cover for property, contents, equipment, interruption to business, goods kept in stock, goods in transit, money, loan repayments, public liability, product liability, partnership protection, health, critical illness and legal expenses.

Compulsory insurance

All businesses that employ staff must take out employers’ liability insurance. This will provide cover against any claims that an employee makes for any injury or illness sustained while working for the business.

Any company that has vehicles that are used for business purposes will need to have motor insurance. The minimum requirement here is third-party insurance since that will cover personal injury to others and damage to property. Comprehensive insurance will additionally cover for any damage to or theft of the vehicles themselves. In those cases where the car or van is used for private as well as business purposes, the insurance must cover both.

Some businesses – lawyers, financial consultants – offer advice as part of their service, and they will require professional indemnity insurance. This will protect them against clients who bring an action against them on the basis that the advice offered was wrong or negligent. As well as being a mandatory requirement for legal, accountancy and financial firms, professional indemnity insurance is often taken out by other types of business such as management consultancies and designers.

Basic business insurance

Most businesses have physical assets that need to be insured in case of damage or loss. These include premises, stock, equipment, tools and even money.

Exactly what sort of general insurance a particular business requires will depend on the type of business it is, the extent and nature of its physical assets, and the level of risk it faces.

Premises

Invariably, a business will operate from premises of some description, be it an office, a factory or a retail outlet.

A good, standard building insurance policy should offer insurance against damage caused by fire, floods, storms, lightning, vehicles, vandalism, explosions and riot.

It is possible for a business to choose an all risk policy. This will provide protection against any other sort of damage or loss mentioned in the policy, although it will not cover daily wear and tear, electrical failures or general deterioration.

Calculating the insurable value of a business building is not the same as simply placing a market value on it. The insurance should cover the cost of completely reconstructing the property. This is called reinstatement. To arrive at the reinstatement value of a building, a business should consult with a chartered surveyor in order to get an accurate figure.

If the property is rented rather than owned, the business should check with the landlord who is responsible for insuring the building before any lease is signed. This duty normally falls to the landlord.

Even if a business isn’t responsible for insuring its building, it will need to insure the contents such as computers, plant, equipment and stock.

There are usually two sorts of contents insurance: replacement as new and indemnity. With indemnity cover, the wear and tear to which the item has been subject is deducted when calculating a claim. But whether it is at full value or allowing for wear and usage, the policy must cover fire, flood and theft.

Business interruption

Business interruption insurance covers a company for any costs or loss of profits that arise from an event – fire or flood or major theft – that threatens to interrupt its ability to carry on trading. The costs should include having to re-locate to temporary premises and renting emergency replacement equipment.

Additional insurance cover

The nature of a firm’s business will dictate if it needs to take out special types of additional insurance. There is a range of specific policies available, some of which will have more relevance to certain businesses than others.

Portable equipment

Laptops and mobile phones can be expensive and vulnerable, so they must be insured against fire, theft and accidental damage whether on or away from the business premises.

Goods in transit

Any business that transports its goods should invest in cover to protect them against damage, loss or theft while in transit. The policy ought to cover road hauliers, couriers, the post or one of the company’s own vehicles, and should include door-to-door deliveries.

Stock

Stock that is susceptible when in storage – food items kept in a freezer, for example – should be insured against accident or damage.

Money

Cash, cheques, stamps, normally to a set limit, can all be covered against loss or theft. The premium will be priced on whether the money is on the business premises, in a safe or in transit.

Travel

Businesses whose employees regularly travel abroad will need travel insurance.

Expenses

Expenses insurance will provide a business with compensation if it should experience a financial loss.

Loans insurance

Businesses that are unable to meet their commitments on loans and overdrafts, either though accident or sickness, can take out insurance to protect the repayments.

Legal expenses

Legal actions can be very expensive. Legal expenses insurance will cover the costs involved in conducting or defending a legal action and, depending on the policy, employment disputes, tribunals and tax audits.

Credit insurance

Should a customer be unable to pay a bill as a result of a business failure, the loss can be made good, wholly or in part, with a credit insurance policy.

Engineering insurance

Some machinery is specialised or expensive enough to require its own insurance policy. In some cases, and depending on the type of machinery involved, insurers will insist on inspecting the machinery involved on a regular basis.

Data processing insurance

Businesses that handle large amounts of electronic data can get insurance to protect their processing equipment.

Vehicle insurance

The law stipulates that all business vehicles must have insurance cover.

However, a business must also make sure any vehicles that belong to its employees but which are used for business purposes are also covered for business use. The same applies to the business owner’s vehicle or vehicles; any private insurance policy will have to be extended to include business use.

A business should also consider the type of business use to which the vehicles are to be put. This is because varying types of business use require different sorts of cover. A sales employee who is constantly on the road will not be treated for insurance purposes in the same way that an employee who only rarely drives on company business.

Businesses with more than five vehicles may be able to get discounted fleet insurance.

A business must inform its insurers if any of the employees who drives for the firm has been convicted of a serious motor offence in the past five years. Failure to do so could mean that the business will not be insured.

Homeworking insurance

Normal household insurance policies are not sufficient to cover those people who run their business from their homes.

They will need to extend their household policies to include any office or business equipment. If clients visit their home to discuss business projects, then, as with other business premises, a home-run business will also need to take out public liability cover (see our liability insurance guide).

To make sure it has the right type and the right level of general and specialist insurance, a business should consult with an authorised and regulated insurance broker or provider. An insurance provider should be a member of the General Insurance Standards Council; a broker should be chosen through the Institute of Insurance Brokers.

Liability insurance

Under the law, a business has certain duties towards its employees as well as to its customers and the general public. If it neglects its responsibilities or ignores its duties, then the business could be deemed legally liable as a consequence for any injury or illness sustained by either a member of staff or of the public. Liability insurance is designed to cover the legal costs and the compensation that might be incurred were the business to be sued and judged at fault by a court or tribunal.

Employers’ liability insurance

Employers’ liability insurance is compulsory for any business that employs staff. The aim is to provide the employer with cover to pay for any compensation or legal costs that arise as a result of a workplace injury or illness suffered by an employee that is deemed the fault of the employer.

For the purposes of employers’ liability insurance, a worker is regarded as an employee if the business takes tax and national insurance from their salary; if the business is able to dictate when and where and how they work; and if the worker is unable to employ a stand-in when they themselves cannot do the work.

The law on employers’ liability insurance says that an employer must be insured for a minimum of £5 million, although most policies offer cover of £10 million. The Health and Safety Executive has the power to fine a business up to £2,500 for every day that it lacks cover.

Only authorised insurers can provide employers’ liability insurance. A copy of the policy must be displayed prominently in the workplace so that staff can read it; each copy must be retained for a minimum of 40 years.

Businesses should take care to offer their employees the protection that the law demands. They should also follow and implement the instructions of their insurers. Failure to do either could mean that the insurer may withhold payment in the event of a claim.

Public liability insurance

Many businesses have regular contact with customers or members of the public. Customers might visit the business, for example, or the business might need to visit its customers. Public liability insurance is intended to cover any awards that are made against a business for any personal injuries or damage to property for which it might be responsible. The insurance also covers the legal costs and expenses involved in defending a business in the case of any claims for an award.

Public liability is by and large voluntary, although a few types of business must take out cover.

Businesses that visit clients should make sure that their policy provides both on- and off-site protection. As well as businesses that operate from a shop or office, those that are run from home might also need public liability insurance if clients are in the habit of visiting.

The cost of the premium will be determined by the nature of the business, the turnover and the number of staff employed.

As with all policies, it is wise not to under-insure, since legal fees and compensation awards can be high. Any policy should be kept under review so that it adequately reflects any changes in the business and the scale of risk that those changes introduce.

Product liability insurance

The law regards a product as any item that is sold or offered to people by a manufacturer or a supplier.

Products must be made to a standard that suits their purpose. If, however, a product causes personal injury or damage to property because it is faulty or defective, then the company that made or supplied it is legally liable.

Product liability insurance will provide cover for any awards that might be made against a manufacturer or supplier for any injury or damage that is the outcome of a defective product.

If the business that supplied a faulty product is separate from the business that manufactured it, then the supplier might actually find themselves more exposed than the manufacturer since it is often they who will be claimed against first.

Ideally, the policy ought to protect the holder against safety claims, spoilage and indemnity costs like medical bills. There is, however, an important pre-condition. Product liability insurance only covers against unforeseen circumstances; it cannot be used to defend a business that makes or supplies an inferior or substandard product or that is responsible for poor quality workmanship.

Policies usually offer cover of between £0.5 million and £5 million. The cost of the premium will in part be affected by the level of risk posed by the product. This will be judged according to the use to which it is put, the circumstances under which it is used, and the people by whom it is used.

However, a business can help reduce the premium by implementing an effective quality control programme, of which the insurer should be made aware.

Professional indemnity insurance

Professional indemnity insurance offers cover for those businesses that deal in knowledge or particular skills.

If such businesses make a mistake or are negligent, then it safeguards them against any claims for compensation from clients that might arise.

Many professional businesses, like architects and management consultants and designers, opt to take out professional indemnity; but for some – lawyers, accountants and financial advisers – it is compulsory.

One of the peculiarities of professional indemnity insurance is that it must be held at the time that the claim is lodged as well as when the mistake was made. This is because there is often a substantial time lag between the two. To ensure that they are protected for long enough, anyone who either retires or shuts down their business will therefore need some form of continuation or ‘run-off’ cover.

In the event of having to defend itself against a claim, a business should always see that meticulous records are kept of all projects or commissions, and that contracts contain detailed and clear definitions of duties and responsibilities.

Directors’ liability insurance

The position of a director of a company brings with it special responsibilities in a number of areas. Directors can be held liable, both as individuals and collectively, over such matters as health and safety, data protection, keeping adequate accounts, fraud and negligence.

Directors’ liability insurance covers company directors for compensation, settlements and legal costs should a claim be brought against them. To qualify for cover, however, the directors must have acted inadvertently in breaching their duties; deliberate actions may mean that their liability is not met by the policy.

Property owners’ liability insurance

Were any members of the public to injure themselves in an accident while visiting business premises, then property owners’ liability insurance will pay for any damages that they might win as a result.

Sometimes such cover is included in a business or contents insurance policy. For businesses that rent rather than own their premises, it often the case that, while the business takes responsibility for insuring the contents, the landlord insures the building. The business must therefore check that at least one of the policies includes property owners’ liability insurance.

Premiums

The issue of the cost of business insurance has become a thorny one in recent years, with premiums reportedly rising by significant amounts each year. The volatility of the stock markets and, more importantly, the apparent growing willingness of employees to bring claims against their employers have, insurers say, added to the expense of putting together a viable policy.

Insurers will normally cost a premium by estimating the risk faced by a business. To do this, the insurer will consider the sector or type of industry in which the business trades; it will assess the actual level of risk; and it will review the claims record of the business.

A business is not entirely helpless when it comes actively to influencing an insurance estimate. If it can demonstrate that it has implemented a rigorous risk management policy, and if it has a good health and safety record, then the insurer will be more inclined to offer a cheaper premium.

A particular gripe – one that is now being addressed by the insurance industry – is that most premiums still involve a general calculation of risk taken across a number of similar businesses in the same or similar sectors. No distinction is made between businesses with an efficient health and safety policy and those that perform badly. The effect is that diligent firms end up paying higher premiums in order to subsidise those that are less attentive to their duties and obligations. While this is still the case, the good safety record of an individual business can have a bearing on the cost of the premium they will be charged.

The right advice

The numbers of claims being made against businesses are on the increase as employees and consumers are more prepared to go to law. With claims, and the costs of defending them, capable of reaching substantial amounts, the importance of adequate liability cover has never been more urgent for businesses.

To get the best advice on how to insure themselves in line with both the law and the risks facing them, a business should consult with an insurance broker. The broker should be a regulated by the Financial Services Authority, or should be sought through the British Insurance Brokers’ Association.

Small can be beautiful

gibsonhewitt — Thu, 15 Sep 2011 12:52:12 +0000

Growth is not, as many believe, the only criterion of success in business. Indeed, it is perfectly possible to remain a small business and still be successful.

Equally, it is possible to experience growth in your business and to fail – or at least to be so beset with problems as to have little opportunity to enjoy the fruits of your ‘success’.

This is especially true if you take personal as well as business matters into consideration.

Cash flow problems: – Often for rapidly growing businesses a steep increase in sales leads not to more cash in hand, but to less. If this process remains unchecked eventually the reduced cash flow will undermine profitability and in extreme cases lead to insolvency and business failure.
Increased borrowings: – Cash flow problems can be further exacerbated if the growth requires extra short-term funding to pay for more office-space, extra computers, more stock, and so on.
More people skills: – As you start to take on more and more employees you will need to develop a whole range of people skills. You will have to learn how to hire and how to fire, how to motivate and how to delegate, how to reward and how to discipline – and you will need to find the time to do all this!
More bureaucracy. – As the business grows, so does the paperwork, compliance requirements, etc. You might need to invest even more of your scarce cash in bigger and better systems to deal with it – and find the time and expertise to master the new systems!
No free time: – Rapidly expanding businesses make great demands on your time, and you might find yourself working much longer hours than you want to.
More stress: – Add to all of this the problems associated with personnel issues, poorly paying customers, crashing computers, etc. and it all adds up to a lot more stress.

When you weigh your personal ambitions and lifestyle objectives against the added challenges of expanding your business, you might decide that the old saying, ‘Small is beautiful,’ has more than a grain of truth in it!

How to protect your business when your customers go under

gibsonhewitt — Mon, 12 Sep 2011 12:12:26 +0000

What would you do if one of your major customers went under, owing you a substantial sum? Would you be able to recover the outstanding debt – or reclaim goods they had not paid for?

Unfortunately, experience suggests that if you are an unsecured creditor you would be lucky to recover a few pence in the pound – and in most cases you would receive nothing at all.

Your best course of action is to take precautions now to limit your exposure and minimise the impact on your business of any customer insolvency.

Basic precautions

There are certain basic precautions every business should take. Though these are largely common sense, we are constantly surprised by how often they are overlooked:

Maintain an honest and open relationship with your customers and encourage them to share information with you
Establish clear credit control procedures, make sure your customers understand them, and be seen to implement them firmly and consistently
Check credit references before offering credit terms
Do not extend credit limits without good reason
Monitor customer accounts regularly

One of the first signs of difficulty is that a customer’s payment period begins to lengthen. If this happens, you need to act swiftly. You might, for example, arrange a visit to them to discuss the matter. Ask if you can see their accounts and projections. If you are still concerned, you might suggest that they take smaller deliveries more frequently until the situation improves.

Faster payment

Another way to limit your exposure is to speed up the payment cycle. You might, for example, consider:

Restricting terms, say to 20 or even 15 days, and extending to 30 days only where there is a basis for confidence
Specifying terms as ‘payment received’ rather than ‘payment sent’
Including a reminder of your terms on your invoice
Sending out a letter before the invoice is due asking for confirmation that the order was received – this pre-empts the ‘I mislaid/don’t remember receiving your invoice’ excuse

Contractual precautions

Other possible precautions include:

Include Retention of Title clauses in your contracts to increase your chances of repossessing any unused stocks of your products held by an insolvent customer
Where possible, obtain guarantees from directors or other group companies
Where substantial sums are involved, consider taking out insurance against a customer’s failure to pay

Tread carefully

If a customer does get in difficulty it is not always advisable to instigate proceedings too quickly lest you precipitate action by larger creditors who have a prior claim.

In general, you have much more chance of recovering monies owed if a rescue plan is put into place rather than the company going into liquidation.

We can help

As you can see, this is a complex area and professional advice is essential if you are to avoid taking unnecessary risks.

We can advise you on:

Establishing effective credit control procedures
Minimising the impact of customer insolvency
Dealing with insolvent customers

Call us today if you would like to discuss this matter further.