There’s no doubt that maintaining a continuous cash flow when running a SME is incredibly hard. Here, Catherine Rickett, debt recovery manager at Roythornes Solicitors, shares with Finance Monthly her top tips to keep the cash flowing as an SME business owner.

Between recruitment and staff retention, financial outgoings and ensuring the bills are paid on time, chasing unpaid invoices can often seem like a job that can wait for tomorrow.

Whilst many suppliers and clients will pay without a quibble, some are more difficult to enforce, and it is these conversations that are frequently fraught with confrontation. Often it can be difficult to have ‘that discussion’ with a client whilst attempting to maintain a good relationship and retain them.

Building solid relationships are invaluable in business, especially when you're just starting out, and the prospect of bringing legal action against a long-standing or important client can often be rather daunting. I would argue that this is a major misconception, as 85% of our solicitor’s demand letters result in payment in full and in the vast majority of cases without any adverse impact on the business relation in question.

Having a firm but fair approach to payment collection is key to ensuring invoices are paid on time and in full. With that in mind, here are our top tips to keep business cash flow consistent:

1. Be proactive about collecting payments from clients. Have solid, late-payment penalties and collections policies in place, and stick to them. If your client doesn’t hear from you as soon as the payment is overdue, you can be sure that you won’t be the first to get paid; he who shouts the loudest, gets paid first!

2. Make it easy for your clients to pay. The easier you make it, the more likely they will pay you. Consider having card payment facilities, BACS, direct debit, online payments or even PayPal.

3. Know your client! Consider undertaking a credit check on new or even existing customers if you are having difficulty in obtaining payment. It may be that your customer is unable to make payment due to their own financial problems.

4. Consider applying an incentive for early payment. Money is better in your pocket than theirs and whilst you may feel uncomfortable lowering your prices for early payment, sometimes it can cost more to recover debt than any discount applied.

5. Have clear procedures. You need effective systems in place, with standard letters going out on the day after an invoice is due, seven days after etc. It’s not an ad hoc ‘admin chore’; you need to be strict with yourself and your customers.

6. Keep a ‘cash cushion’. Ideally, this should be three months' operating expenses to protect you from unexpected cash flow issues. Bad payers are a business reality and if your company is working from an account balance of nil, one slow sales month could mean instant disaster.

We understand the need to preserve relationships so that commercial agreements can continue and our team of experts are able to have these difficult conversations on your behalf, starting with our solicitor’s demand letter for as little as £5 + VAT. Even if the problem is not resolved at that point, there is no obligation to commence proceedings and we will then advise our clients on the appropriate action to take.

Company voluntary arrangements (CVAs) have been a mainstay in the financial news over the last six months due to their status as the restructuring tool of choice for many of the UK’s high street stores. House of Fraser, Mothercare, New Look and plenty more retailers besides have all used CVAs to try to renegotiate their existing debts with unsecured creditors. But with this increasing use has come more scrutiny, with a number of parties unhappy with the way the current system works.

Are CVAs fit for purpose?

There is growing concern among a number of parties that CVAs, as they stand, are being abused. Company voluntary arrangements are an insolvency tool that’s designed to give struggling businesses more time to repay their debts and an opportunity to restructure away from the constant threat of legal action from creditors. However, they are increasingly being seen by creditors as an easy way for businesses to avoid administration and downsize their operations to the detriment of their creditors.

Landlords, in particular, feel like they’re getting the raw end of the deal. That’s because many struggling retailers, with House of Fraser being a recent example, are using CVAs to force reductions in the rent they pay and even break leases to close stores. It’s not only landlords who are feeling aggrieved. Other retailers that are battling to stay afloat are having to watch their rivals secure lower rents through CVAs while they are left to pay the going rate.

Landlords feel they’re not having their say

For a CVA to be put in place, it must receive the approval of 75% of the company’s creditors by the value of debt. However, while it is only unsecured creditors that will be affected by the terms of the CVA, secured creditors like banks and other financial institutions are still allowed to vote on the proposals. That means many CVAs are being approved without being accepted by landlords and other unsecured creditors who will take the financial hit.

Landlords are also concerned that CVAs are not always being used by retailers as an absolute last resort. Some landlords claim that retailers are not ‘on the cliff edge’ and are simply seeking a way to reduce their debts. This is often to the detriment of landlords and the benefit of the retailers’ shareholders. As an example, House of Fraser asked its UK landlords to accept a 30% rent cut, yet in the same month it opened a new 400,000sq. ft. store in China.

What reforms, if any, are needed?

The insolvency trade body R3 recently published a report that evaluated the success and failure of CVAs and recommended some changes that could be made to make the process more attractive. The report made a number of recommendations:

• CVAs should not last longer than three years without good reason.
• The duties of company directors should be made clearer and include a requirement to address financial distress immediately.
• CVA documentation that’s filed at Companies House should be more transparent and informative.
• Public sector creditors that vote on the CVA proposal should have to explain their decision fully if they refuse to support it.
• Standard terms and conditions for CVAs should be made available and adopted.

This will provide some relief to landlords who will be pleased to see the recommendation relating to director’s duties and the requirement to address financial distress earlier. They will also be reassured by R3’s agreement that CVAs in their current form are too long.

As yet, there’s no indication as to whether the recommendations are likely to be implemented. However, the report does make a strong case for the government to look again at the CVA process and implement at least some of the reforms.

Mike Smith is the Senior Director of Company Debt and a turnaround practitioner who specialises in giving small and medium-sized businesses debt advice and guidance on CVAs.

The rapidly expanding tech startups industry is progressively becoming the future and face of the business world and those who want to nurture their inner Elon Musk are increasingly travelling abroad to emerging tech hubs. Although, Silicon Valley still remains the undisputed destination for startups and venture capitalists, a new crop of global tech hubs are rapidly expanding to match the talent oozing out of the Bay Area.

A recent study by SmallBusinessPrices.co.uk has revealed the best rising tech hubs for people who are seeking entrepreneurial opportunities. The research took into account the average internet speed, the average business valuation, and cost of living, among other metrics.

1. Boulder, US - With the second highest internet speed, Boulder has over 5,000 business investors and an average business valuation coming in at $4.3 million. Boulder is a prime location for those wanting to start their next tech-startup.

2. Bangalore, India - In spite of an average internet speed of 11mbps, Bangalore has over 6,000 investors and an average business value of $3.4 million making it one of the best locations on the Asian continent.

3. Johannesburg, South Africa - As one of the most affordable tech hubs for young innovators, Johannesburg boasts reasonable average monthly rent cost of $416. The city has an average business valuation of $3.6 million and over 1,200 investors.

4. Santiago, Chile - With 1,201 startups, Santiago is considered as a new home for tech startup companies, making it a great destination for those in the South American continent. The city has an average monthly rent cost of $372, making it the second cheapest city to live behind Colombo in Sri Lanka.

5. Stockholm, Sweden - Named the 9th happiest country in the world, Stockholm is the capital of Sweden and ranks number 5 for the World's Rising Tech Hubs. The city also scores highly for its internet connectivity with the second highest average internet speed of 42mbps behind Houston, Texas.

Digital Hotspots
Connectivity is a non-negotiable in the 21st century working world, especially for tech startups. Although Houston has only having 322 public wifi hotspots, the city number one for the highest average internet speed of 65 mbps. Stockholm offers some of the highest internet speed outside of the United States at 37 mbps.

Business
Recently, there has been growing trends of millenials moving abroad for greater work opportunities. Bangalore is great for young innovators as it call home to over 7,500 startups and the largest amount of investors (6,236). While Boulder in Colorado has the highest average business valuation of $3.4 million.

Living

The cost of living is one of the biggest concerns for many young people especially when the majority of their capital is being used to fund their venture. Helsinki has the highest average monthly rent cost of $1,548, with Tel-Aviv ($1,338), and Boulder ($1,250) respectively. Whereas Lagos has the lowest infrastructure score of 2.4, with the highest being Stockholm (4.27).

Although many still regard cities such as Silicon Valley as one of the few locations where entrepreneurs can develop their untapped entrepreneurial talent. This new study gives insight to the best alternatives rising cities to live and work for innovators outside the overcrowded Bay Area.

Starting a small business is the ultimate working dream for many. When you take the plunge to finally make it happen you’ll have lots to think about. One of the major considerations will be securing funds.

If you’re starting off a new business you may need a hand to get your vision off the ground. An organisation like SCORE could provide the support you need; it’s a Small Business Administration that has helped thousands of small businesses launch and grow.

Bear the following tips in mind as you start the process of securing investment for your small business:

1. Start early

If you have savings that you can put towards launching your business or expanding it, make it one of the first things you do. If you’re looking to secure investment and raise funds for your business, you’ll be impressing potential investors by showing them that you’re committed to your idea and backing it with your own money.

2. Have a plan

If you want to be taken seriously by investors, you need to make sure you have a growth plan in place so that you’re able to demonstrate a realistic outlook for further expansion.
This will give investors the confidence that you are serious about your plans. Investors will expect a long-term plan for development, with detail and forecast revenue; a good idea in isolation isn’t enough.

3. Recruit well

If your start-up is larger than a one-person operation it’s essential you have a solid team of people behind you. An experienced, enthusiastic and knowledgeable team around you provides potential investors with confidence. Choose wisely!

4. Approach experienced investors

Background research will prove whether or not a potential investor has experience when it comes to companies similar to you. You should ideally approach those who have a good track record when it comes to helping businesses comparable to you. They may offer more than just money - their knowledge and previous experience could be extremely valuable for you.

5. Point of Sale System

A Point of Sale System is where your customers make payments for items that they buy from your company. Such a system allows you to have much better control over your business operations as you know exactly what’s been sold on a daily or monthly basis, how many products you have in the warehouse and how much money you’ve made. You can keep track of your inventory through analyzing sales processes, sales reports and other data.

6. Be patient

Raising funds is never going to be straightforward and it most certainly won’t happen overnight. It takes time and patience so stick with it and don’t give up - honestly, it will be worth it in the end.

7. Be flexible

Investors want to see a return after offering you funding, so make sure that you’re flexible with the level of control that you are giving them when it comes to the decision making process. If they’re able to see that you can easily be a success without too much legislation and paperwork, they might be likely to invest.

8. Showcase your best pitching skills

If you’re looking to gain investment, you really need to possess strong pitching skills. Investors need to see a clear and concise plan of the future direction of your business, exactly how their money is going to help, and when they might see a return on their investment. Practice makes perfect so make sure that you don’t neglect the preparation stage.

Securing investments can be a daunting process, but it can be done. Prepare thoroughly, do your homework, be confident, explain your vision clearly, and you’ll have a great chance of succeeding.

BDRC published its quarterly SME Finance Monitor. The largest and most frequent study of its kind in the UK, research findings have been gathered across 27 waves of interviews since 2011 and are based on more than 130,000 interviews with SMEs.

The data to year ending Q4 2017 published provides further updates on the period following the General Election and as negotiations over Brexit continue. Current demand for finance remains limited, but ambitious SMEs are more likely to be financially engaged.

Shiona Davies, Director at BDRC, commented: “There have been no dramatic market changes in SME sentiment since the referendum. Whilst there are some increased concerns about the economy and political uncertainty, larger SMEs in particular are more likely to be planning to grow and to be using finance, as are those SMEs with a long-term objective to be a bigger business.”

“4 in 10 SMEs are planning business activities that might benefit from funding, but SMEs are as likely to think they would fund a business opportunity themselves as approach a bank for funding. Awareness of equity finance, which could provide longer term funding, appears limited even amongst larger SMEs. For those who do apply for a loan or overdraft, success rates remain high. However, first time applicants’ success rates are currently lower than in 2015, albeit still higher than they were in 2012. Additionally, fewer SMEs who are not currently using finance show any appetite to do so.”

Key findings

Use of (and demand for) finance remains limited, as self-reliant SMEs use trade credit, credit balances and financial support from directors in addition to external finance. Awareness and use of longer term equity finance is also limited.

• In 2017, 8 in 10 SMEs (82%) were profitable and 42% reported having grown, both little changed from 2016.
• 38% were using some form of external finance, but more (47%) met the definition of a ‘Permanent non-borrower’ with little apparent appetite for finance, similar to 2016.
• 7 in 10 SMEs (70%) would rather grow more slowly than borrow to grow faster and this has changed little over time.
• Fewer SMEs in 2017 were ‘happy to borrow to help the business grow’ (34% in 2017, down from 45% in 2016) and the proportion of SMEs who are not using finance but would be willing to do so in future has declined over time (24% of all SMEs in 2015 to 16% in 2017).
• A third of SMEs (35%) received trade credit and 25% hold more than £10,000 in credit balances. In both cases, most of those with trade credit or credit balances say it reduces their need for finance.
• 29% have received an injection of personal funds from the owner/director. Given a (hypothetical) opportunity that would require finance to achieve, 39% said the directors or the business would provide the funding, compared to 37% who would approach their bank for funding. 1 in 5 SMEs (19%) would not take up the opportunity because of concerns over the risks associated with debt.
• In 2017, 5% of SMEs reported making a new or renewed loan or overdraft application in the 12 months prior to interview. This was unchanged from 2016 and remains at half the level reported in 2012 (when 11% of SMEs had made such an application).
• Overall, 15% of SMEs in 2017 reported any kind of borrowing ‘event’, and 2% had wanted to apply but something stopped them (the Would-be seekers). The Happy non-seekers (83% of all SMEs) remained the largest group, in line with 2016.
• In a new question for H2 2017, 62% of SME companies said that equity finance was a form of funding that they knew nothing about. Larger SMEs were somewhat more aware, but even amongst those with 50-249 employees, 52% knew little about this form of finance with just 6% of them using or considering using it. 1 in 5 companies were aware of equity finance, but thought it was not a suitable form of finance for them – this varied little by size of company.

Whilst appetite for finance remains limited, a consistent 8 in 10 of those who did apply for a loan or overdraft were successful – although those applying for new money for the first time were somewhat less likely to be successful than in other recent periods.

• 80% of all loan and overdraft applications made in the last 18 months (to Q4 2017) were successful, in line with other recent periods.
• Almost all renewals in this period were successful (97%).
• Applications for new money on loan or overdraft have always had a lower success rate than renewals. For the 18 months to Q4 2017, 63% of applications were successful. This was lower than was seen in the 18 months to Q4 2015 (when 70% of new money applications were successful) but remained ahead of the 49% who were successful in the 18 months to Q4 2013.
• Success rates for new money applied for by those who had borrowed before was stable (78%), so this decline in new money success rates was due to a lower success rate for first time applicants (currently 50% compared to a success rate of 60% for applications made in the 18 months to Q4 2015). However, as with overall success rates, this is higher than was seen in the 18 months to Q4 2012 and to Q4 2013 when 4 in 10 first time applicants were successful.

Looking forward, whilst more SMEs with employees are planning to grow, there are some concerns about the economic and political climate. Future demand for finance remains stable, but it’s worth noting that a quarter of SMEs are ‘Ambitious risk takers’ with a greater engagement with finance and 4 in 10 SMEs are planning a business activity that might require funding.

• 45% of SMEs in 2017 were planning to grow. This is somewhat lower than the 49% planning to grow in 2012, due to declining levels of growth amongst 0 employee SMEs (46% to 41% over this period). Growth aspirations amongst SMEs with employees was in line with, or higher than, their aspirations in 2012.
• The top 3 barriers to running the business remained “legislation and regulation” (15% in Q4 2017), “political uncertainty” (15%) and the “current economic climate” (14%). 29% of SMEs mentioned at least one of these as a barrier in 2017, up from 22% in 2016.
• 12% of SMEs in 2017 were planning to apply for finance, unchanged from 2016 but increasing quarter by quarter from 10% in Q1 to 14% in Q4 2017. Confidence that the bank would agree to lend was somewhat lower in 2017 at 50% and remained below the actual success rates achieved. Most of those planning to apply were already using finance.
• 27% of SMEs in H2 2017 agreed that they both wanted to become a much bigger business and that they were prepared to take risks to succeed. These were more likely to be younger, innovative businesses that were, in turn, more likely to use and to apply for finance. A willingness to borrow to grow was a key predictor of being one of these ‘Ambitious risk takers’.
• 42% of SMEs in H2 2017 were planning to undertake one or more business activities that might require funding, including 19% planning to take on more staff, 17% planning to invest in plant and machinery and 16% planning to develop a new product or service. Larger and younger SMEs were more likely to be planning such activities, as were those planning to grow overall (61%). 19% of those planning any of these activities was also planning to apply for finance, compared to 8% of SMEs with no activities planned.

(Source: Farrer Kane)

Born and raised in Sydney, Australia, Richard Cacho is a Chartered Accountant (ICAEW) and a Licensed Insolvency Practitioner (ICAEW) with over 30 years of commercial and professional experience. After moving to the UK eight years ago, he established his boutique business recovery, turnaround and insolvency services firm – RCM Advisory. Based in Norwich, with satellite offices in London and Cambridge, the company provides services to the SME sector. Below, Finance Monthly speaks to Richard about insolvencies in the hospitality and retail sector and the importance of seeking specialist advice as soon as your business sees any warning signs.

What have been any recent changes in the hospitality sector, from an insolvency perspective?  

There has been an explosion of chain restaurants during the past ten years that offer consistent and reliable restaurant food (a cut above fast food but far from fine dining) to the masses at a reasonable price point. Initially, this was exciting and it seemed as though a new brand (‘flavor of the month’) was launching every month.

The costs of establishing several premium locations, in large premises and with themed fit-outs were substantial and these chains needed to find success quickly in order to recoup set-up costs and to pay for high fixed operating costs.

This market segment is now oversaturated and the cracks are appearing, as it is increasingly difficult to generate the footfall and custom required to sustain profitable operations in the face of stiff competition across the board. Giants of the sector such as Byron Burgers and Jamie’s Italian are recent casualties and are closing numerous outlets under the strain of massive debts and unprofitable trade.

I see rapid consolidation occurring in this sector and many of the chain restaurant brands will be forced to reduce the number of outlets they operate and to keep only flagship outlets and smaller, profitable ones, located away from the flagship. Thus, the brands won’t all disappear but I expect a reduction in the number of restaurant locations.

Is this all bad? No; opportunities will arise for entrepreneurial restauranteurs to fill the void with interesting, standalone restaurants that will be offering more bespoke dining experiences!

How is the increasing popularity of online retailing affecting the brick and mortar retailing?

I believe that traditional brick and mortar retailing is doomed and the evidence is all around us. I am not afraid to admit that I do most of my shopping online now, so, in a way, I am contributing to the realisation of my own prophecy!

When I go to the shops, which is rare these days, I’m either being dragged around by my wife and teenage daughters or I am on a mission (like every man) to buy a specific item that I’ve already researched online. My observations are that there are many shoppers browsing but I don’t really see many people buying. Many retail outlets in shopping malls have more staff than customers. That’s how it looks to me anyway.

This is not very scientific so far, I know. On the other hand, however, I do know that courier companies are doing a roaring trade delivering items purchased online. This is how I do most of my shopping these days. The convenience, the discounted prices, the money back guarantees, the great choice, etc. - it is the way of the future as far as I can tell!

What do brick and mortar retailers need to do in order to adapt to the change?

It might sound a bit extreme, but I think the operators of retail businesses need to rapidly adapt to the seismic shift in consumer behavior and wants or face extinction - or face certain insolvency. As an insolvency professional, I do have some ideas to offer my clients, on a case-by-case basis; one example of what could be implemented would be a hybrid system of retail.

In your opinion what will the future of brick and mortar retail look like?

Following on from my answer to the previous question, I believe that the future of retail is for much smaller retail floor space, where a selection of items would be available for customers to view and try, combined with an online ordering and delivery system. This would provide a perfect blend of a touchy-feely shopping experience, competitive pricing of goods and the convenience of having the goods delivered to one’s home or place of work. My vision for the future of retail has implications for both shop owner/operators and investor/landlords.

What’s the importance of seeking specialist advice as soon as you see warning signs of possible business insolvency?

Enormous. Early intervention strategies are more likely to succeed and will provide more options and flexibility. RCM Advisory offer a no-cost and obligation free initial consultation, so there are no excuses if you think your business is heading in the wrong direction.

Contact RCM Advisory on 0800 288 4088 for a no-cost and obligation free initial consultation.

Website: http://www.rcmadvisory.co.uk/

Research from Liberis, reveals that over half of UK businesses are unable to access the funding needed to grow; with the main hindering factor being a lack of education or understanding of their funding options. With falling SME confidence in the economy and mounting concerns over costs given the relative weakness of the sterling, Liberis strongly urges the UK to better support its small business community.

The lifeblood of the UK economy, SMEs contribute more than £200bn a year; with this number expected to grow by almost 20% by 2025. Yet, without a vital cash injection, this 2025 vision will be severely stinted.

Hindering growth opportunities, this lag in SME development may in turn negatively impact the economy. Liberis therefore believes it is crucial to ensure better understanding on how to navigate the perceived minefield of funding options. Small business education is desperately required to increase awareness levels of the process; greatly benefiting both businesses and economy alike. Such movement has been reinforced in a recent report from the British Business Bank, in which the UK Government backed organisation pledges its dedication to a more targeted educational campaign on the topic of SME finance.

While 62% of UK SMEs said they need funding to grow and expand, but 57% of SMEs were unsure which provider to obtain funding from and 53% did not have a set amount in mind when looking to access finance.

Liberis found 22% of businesses require funding to maintain business as usual, while 5% need funding to survive past the first year of business. Speed of funding has been identified as integral to achieving this growth. Other findings of the report showed an increase in the popularity of crowdfunding as a source, with 10% of UK SMEs looking to use this as a means for funding in the next two years.

Commenting on the report, Rob Straathof, CEO at Liberis, said: ‘These findings have opened our eyes to a lack of confidence and awareness among SMEs in how to correctly secure the funding they so desperately need. Funding will continue to be a hot topic for the small business community, but urgent action and collaboration is crucial to prevent resulting damage to the UK economy. Without sufficient financial education and support, the UK’s business ambitions will be severely affected but by ensuring they have the correct financial understanding, we can help secure and strengthen their livelihood; fast-tracking their ambitions.’

Established in 2007, in a space where traditional banking and loan models were finding it challenging to meet the needs of UK SMEs, Liberis provides fair and transparent funding options based on business potential, helping entrepreneurs achieve their goals and ambitions. Through its Business Cash Advance, an innovative form of funding, Liberis links repayments directly to cash flow so businesses only repay when their customers pay them. To date Liberis has helped over 6,000 SMEs, advanced £200m in funding and supported over 24,000 jobs in the UK. Moving forward, the company aims to further empower small businesses, broadening customer reach through strategic partnerships and international expansion.

Large enterprises have traditionally struggled to keep up with the pace of their more agile and disruptive SME counterparts. Nowhere is this truer than the finance department. Below Karen Clarke, Regional Vice President at Anaplan, explains the useful simplicities of the zero based budgeting method and the huge possibilities of savings for any business.

It’s incredible to think that many businesses are still chained to the same arcane budgeting process that’s been used for over 100 years. A traditional budgeting process based on extrapolating the previous year’s spend fails to provide the detailed insight needed to achieve a material change in the cost base, particularly when line item expenses are already highly-aggregated.

Companies should no longer feel tied to these dated processes. New technologies are enabling innovative finance teams to overhaul how budgets are allocated and managed, through introducing zero based budgeting (ZBB) – and the resulting savings are starting to make headlines.

Take Coco Cola, which has revealed that it has broken out of the dark ages by incorporating ZBB into its processes, targeting savings of $3 billion by 2019 in the process. Or the world’s largest cereal company Kellogg Co., zeroing in on $150-180 million savings from ZBB. In 2016, the company publicly announced savings directly from ZBB, and noted that these savings will build to a run rate of $450–$500 million by 2018. Crucially, it will enable the company to invest in its existing brands, acquire new brands and fund geographic expansion.

Despite the prospect of realising savings of a similar magnitude, many organisations still shy away from ZBB due to concerns that it is expensive, time consuming to implement, and will disrupt their business. But this is no longer true. With the advent of the cloud and connected planning tools, organisations can implement ZBB seamlessly, without disruption to the business or existing processes.

In a world where every advantage counts, adopting ZBB where everything in every budget must be justified as both relevant and cost effective – will be central to future business success. Enterprises can use the methodology to level the playing field and bring that SME agility into their enterprise armoury. Incorporating ZBB in to business processes doesn’t have to be a complicated process. With so much uncertainly in the market and with Brexit continuing to cast a shadow over business confidence, the importance of driving greater cost discipline across all sectors has never been greater.

As we’ve seen, particularly in retail in recent weeks, sales are dropping and costs are continuing to increase for buyers, creating a squeeze on businesses. In light of this, ZBB can offer an opportunity for long-term sustainability. Despite some recent profit margin improvements caused by ferocious cost cutting, these opportunities are fast running out for organisations and are ultimately short-lived. Instead, companies should focus their efforts on how they can take advantage of marketplace opportunities, which are the real keys to growth.

ZBB is a significant shift in how organisations budget, but the huge opportunities for savings which it can unlock can make vast improvements to any business. The examples already being showcased in the market demonstrate that, for big businesses, the numbers involved are significant, and the opportunity to innovate in this way can be a real market differentiator, enabling the business to allocate funds where they’re really needed.

What’s required is a clear plan for how the business can switch to a ZBB model, with buy in from the top of the organisation. As Kellogg have openly stated, top-down sponsorship is crucial to making any ZBB initiative a success. The business also needs to be equipped with the right tools to enable this form of connected decision making and planning. By looking to tools born in the cloud, organisations have the opportunity to introduce ZBB quickly and without significant cost implications, capturing substantial value in the process.

As organisations start the New Year and are fast approaching the new financial year, never has there been a better time to refresh how costs are considered and find new ways of driving significant cost savings within the business. With continued uncertainty expected in the market, it’s essential that every business equip itself with the necessary tools and processes to strengthen their armour for 2018 and beyond.

One in six small businesses (17%) is planning to employ new staff by the end of April 2017 – with the IT & Telecoms sector leading the employment charge (27%) -– according to the new research from Hitachi Capital’s quarterly British Business Barometer.

The new Hitachi Capital Business Finance data comes as the Federation of Small Businesses has urged The Chancellor of the Exchequer Philip Hammond to boost jobs and long-term growth in the forthcoming Spring Budget. The new Hitachi Capital data suggests many SMEs already plan to hire new staff before April: the areas where they could do with Government support relate to keeping fixed running costs and business rates down.

Beyond being financial growth drivers for the economy at large - and an ongoing source of ideas and innovation - the UK’s small businesses are vital drivers for employment and training to the British economy. The new research by Hitachi Capital Business Finance revealed the younger the small business the more likely it was to be hiring. One in five SME decision makers (20%) from enterprises less than five years old plan to hire new people by April. In contrast, businesses over 35 years are the least likely to be hiring (13%).

For eight of eleven regions polled, typically around one in six small ventures were planning to expand their headcount in the next three months – with London, the South East, North West and Scotland driving activity.

Regional employment over the next three months

By sector, the divergence between regions most and least likely to employ new staff were more pronounced – the biggest opportunity sectors being IT & Telecoms, Financial Services, Manufacturing and Medical.

Employment over the next three months by sector

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance comments: “The Spring Budget is an opportunity for the Chancellor to openly support the growth ambitions of SMEs and the positive contribution they make to the UK economy at large. Many small business owners are concerned about the impact of a steep rise in business rates and have placed importance on cutting fixed costs and better managing cashflow and invoicing to keep their business plans on track.

 “On a positive note, our Spring research suggests that many SMEs are adjusting quickly to Brexit, looking for new markets to expand into and fresh methods to drive growth – and many intend to increase headcount to support these plans. This week’s Budget is a great opportunity for the Government to reaffirm its support for the sector at a critical time.”

(Source: Hitachi Capital Business Finance)

With Christmas shopping in full swing, it begs the question, ‘How are the UK’s SMEs fairing this season, despite Brexit?’ Avalara asked this question among UK SMEs in a recent survey.  We found that, despite Brexit, more than 60% of UK SMEs say they won’t be making adjustments to their business this season.  In fact, more than half (54%) are not concerned about Brexit impacting their Christmas season sales.  Furthermore, 75% of SMEs said they are ready for the Christmas shopping season.

The Parliamentary vote on Brexit had added further confusion on the likely date of Brexit.  While many companies may have already started drawing up plans, including exit strategies, the exact exit date of Brexit had been put in doubt given Parliament’s involvement in November.  It is no surprise, then, that many businesses have chosen to take a ‘business as usual’ approach to the Christmas sales season.

Our poll also uncovered that:

• Women lead the pack: Nearly 60% of female SME bosses (59.5%) said they were ready for Black Friday/Cyber Monday this year, vs 36% of male bosses. More than 50% of women respondents (51.4%) are ready to handle the Christmas shopping season in general, as compared to 34% of male respondents.
• Price and store hours are the primary changes, for the 26% who say they are planning to make some adjustments to their business this Christmas season due to Brexit:
  • 46% will raise some prices
  • 40% will cut some prices
  • 38% will extend store hours, sometimes

To learn more about Avalara or to follow the latest Brexit news impacting the trade/VAT industry, please visit www.vatlive.com.

At the end of Q2 2016, the Insolvency Service estimated that 3,617 corporate and SME companies entered insolvency, a number that is 2.7 % lower than the same period in 2015. For personal bankruptcies, the estimate is that 3,537 bankruptcy orders were granted which is 11.2 % lower than the same period in 2015 and the lowest since Q3 1990.

 However, unlike the corporate and SME sectors, total personal insolvency, including bankruptcy filings, Debt Relief Orders (DRO) and Individual Voluntary Arrangements (IVA), was up 22.4 % from Q2 2015. The lower personal bankruptcy filings were offset by higher DROs, which were 15.6 % higher in Q2 2016 versus Q2 2015, and IVAs which were 42.7 % higher in Q2 2016 than in Q2 2015.

 To tell us more about trends within consumer and SME insolvencies in the UK and the implications for credit grantors, Finance Monthly interviewed Andrew Berardi – PRA Group Europe’s Managing Director for UK Insolvency Investment Services.

Why have corporate and SME insolvencies fallen?

One needs to dig deeper into the corporate insolvency figures to find possible clues. For instance, one statistic shows that Compulsory Liquidations, where a credit grantor pushes the company into a bankruptcy or winding up order, decreased by 14 % between Q2 2015 and Q2 2016. Also, total company liquidations stand at the lowest since comparable records began in 1984. It is clear from the figures that credit grantors are giving their corporate and SME clients “breathing space” and in some instances, providing a life line by re-writing loans, finding additional financing, and even forgiving some loan principal.

The resurgence of Private Equity after the financial crisis has also provided a lifeline to struggling entities through funds designed specifically to invest in turnaround situations. The Insolvency Service website in the UK also publishes interesting statistics regarding insolvency by specific industry types; construction and retail/wholesale trade seem to have the highest incidents of insolvency proceedings.

A final statistic, and one not included in the official corporate insolvency statistics, is that companies entering liquidation after administration have risen by 33 % from Q2 2015 to Q2 2016. As trading conditions get tougher, this could be a harbinger for a rise in future corporate and SME insolvency proceedings.

What is driving the changes in personal insolvency filings in the UK?

Despite the fall in personal bankruptcy filings, overall consumer insolvency filings are on the rise. The statistics show that the fall in bankruptcy filings is confluent with the rise in DRO filings. In October 2015, the DRO protocol was relaxed so that consumers with £20k in debt (£15k in the previous DRO protocol) and £1k in asset (£300 in the previous DRO protocol) could access the DRO protocol. The relaxing of these guidelines has resulted in greater access to the DRO protocol for a population of consumers who may have otherwise had to petition for a bankruptcy as their only viable debt forgiveness option.

However, the causes for the rise in IVA filings are less certain. Evidence suggests that the IVA protocol has been marketed to a broader range of consumers who are now aware of the many benefits of an IVA as compared to other forms of debt forgiveness arrangements. Additionally, changes in the regulatory landscape may mean consumers are being directed away from unregulated Debt Management Plans (not considered insolvency) and increasingly advised to consider a regulated debt forgiveness scheme such as IVAs. Regardless, the increase in IVAs cannot be ignored.

What should credit grantors do to maximize recoveries on credit products defaulted due to insolvency?

Recoveries on insolvency proceedings can be lengthy and unpredictable, and in the case of DROs, credit grantors should not expect any recovery. Whether your customer is an SME or consumer, it is important for credit grantors to engage in the process by:

• Engaging with the insolvency practitioner, bankruptcy trustee, or administrator appointed to the case.
• Processing and responding to the paperwork in a timely and accurate manner.
• Lodging your proof of debt along with supporting documentation such as statements, invoices, etc. where and when requested.

There are specialist service providers who can assist your department with these tasks for a fee. Another way to maximize recoveries may be to sell the insolvencies to an FCA regulated specialist debt purchaser such as PRA Group.

How can PRA Group assist UK credit grantors to maximise their recoveries from SME and Consumer insolvencies?

As a highly respected and recognised global leader in the purchase of nonperforming personal and SME credit products, PRA is also one of the industry leaders in purchasing many types of consumer and SME insolvencies including IVAs; CVAs – an IVA for SMEs; Trust Deeds – the Scottish equivalent to an IVA; and bankruptcies.

With insolvency purchasing capabilities in the UK, Germany, U.S., and Canada, there is a good chance your organization can benefit from PRA’s insolvent debt purchasing expertise. Our insolvency team consists of industry veterans who are highly regarded for their ability to structure debt purchase solutions that are customised, compliant, and transparent.

What are the key considerations to make when managing acquisition of bankrupt and insolvent consumer debt? What are the most common challenges that you are faced with?

Sellers of insolvent consumer debt should be clear on the internal strategic purpose for selling insolvent debt. As indicated above, insolvency proceedings can be administratively burdensome for an internal recovery operation and therefore many sellers like the idea of a “forward flow” whereby the buyer assumes the administrative responsibility of managing the insolvency. Some sellers simply prefer to enter into periodic “spot sales” to fill a recovery gap or accelerate the recovery from the insolvency. In being clear on the strategic purpose, PRA can then structure a purchase solution right for the Seller. Another common challenge we have as a buyer of insolvent debt is the quality of the data. Certain insolvency-specific data (such and insolvency start date and insolvency type) is important to ensure the best price. Given PRA’s extensive experience with these debt types, we are often able to supplement seller data through our data warehouses, which ensures the best possible price for the seller.

As a thought leader in this segment, how are you developing new strategies and ways to help your clients?

We are very much an active participant within the insolvency industry, which, in my opinion, assists everyone in the insolvency chain. Throughout the regions we operate, PRA maintains strong working relationships with Trustees, Practitioners, regulators, creditor liaisons, and consumer advocacy groups. In the UK, PRA maintains representation on the standing IVA working committee. In the US, we have implemented a hybrid “service to buy” solution, which gives sellers the best of both solutions.

Career Highlights

1. In 1993, Andrew joined Bear Stearns Companies Inc. to help establish and grow a first ever debt purchasing platform for consumer insolvencies in the United States.

2. In 2003, while still with Bear Stearns, Andrew moved from New York to London to build and grow a first ever debt purchasing platform for consumer insolvencies in the United Kingdom.

3. In 2014, Andrew joined the PRA Group after a 5 year period working with a boutique investment advisor where he established the first ever Private Equity style fund dedicated exclusively to the purchase of consumer insolvencies in the UK.

Food for Thought

What would be your top 3 tips for going the extra mile?

1.           Be as clear as possible regarding objectives and the desired outcomes
2.           Surround yourself with talented people and give them guidance and autonomy
3.           Endeavour to be two steps ahead of the competition

What does a typical day in the office look like for you?

At some point, one’s career evolves to where there is no typical day in the office. However, every good day involves some combination of strategic dialogue, data analysis, and client centric activity … all in the same day.

What inspires you to press further into your work?

Mentoring younger people who are passionate about building the business and building their career within PRA Group. I very much enjoy meeting our clients and ensuring the business is doing everything it can to meet their needs. Last, but not least, I enjoy one on one meetings with Insolvency and Turnaround professionals who are passionate about rescuing small business, and, for those practicing on the personal insolvency side, passionate about helping consumers to resolve their debt problems and move forward with their lives.

Email: Andrew.berardi@pragroup.co.uk

Andrew always has plenty of time to speak to those who have a shared interest in trends within the insolvency market or wish to better understand PRA’s debt purchase capabilities.

Lord Livingston, Minister for Trade & Investment

KPMG has entered into a strategic partnership with UK Trade & Investment (UKTI), which will see the two organisations supporting the growth of UK exports of goods and expertise. Both organisations have signalled an intent to collaborate together offering support to what is a vital part of the UK's economic growth targets. UKTI and KPMG will work together over the coming months on a number of initiatives to support current and new exporters.

The first initiative to be announced involves a continuation of work with the NHS Leadership Academy. With the support of Healthcare UK, the government body which supports the UK health sector to do business overseas, KPMG will work with the NHS Leadership Academy to take their successful training programmes to countries where there is growing demand for the UK's proven expertise in healthcare leadership. Created in 2012, the Leadership Academy has already trained over 36,000 leaders at all levels in the NHS in England at www.davidsoncolaw.com.

Lord Livingston, Minister for Trade & Investment, said: “It's great to see UKTI and KPMG come together to present this vision for how we can work in partnership over the next two years. In particular, the plans to work with the NHS to extend the NHS Leadership Academy across the globe are an excellent example of how Government and the private sector can work together to encourage economic growth."

KPMG will also work with the wider UKTI team to address the challenges facing SMEs in identifying opportunities to export. KPMG will promote the UKTI Business Opportunities Programme (Bizopps) to its clients and contacts.

Simon Collins, Chairman of KPMG in the UK, said: “SMEs are the beating heart of our growing economy. The Bizopps programme will really boost small businesses across the UK, helping them access international markets to drive the UK's export growth.”