How can the causes of investment failure be minimised?

investment Nov 29, 2018

Perhaps the most high-profile business collapse of the year has been the construction giant Carillion, reinforcing the message that no business is too big to fail and that no-one is immune to investment failure.

It prompted questions over the integrity of its auditors KPMG, who in March 2017 had expressed no concern over reported profits of £150m, even though four months later these proved to be illusory.

It also prompted an exodus of investors once the company’s debts became clear and confidence in its viability plummeted, thereby precipitating the collapse.

But should the investors have known better than to trust a business that diversified into a range of disciplines outside its core competence and embarked on a series of take-overs?

There are many causes of investment failure. It is not a precise science and it does involve a degree of trust, not to mention emotion. Too many investors fail to carry out due diligence before they decide where to put their money.

So,...

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How much longer before SMEs get a fair system for dispute resolution with the Banks?

It looks likely that SMEs still have some time to wait before a cost effective and fair system for dispute resolution with the Banks becomes a reality.

It is now approaching ten years since SMEs’ scandalous treatment at the hands of RBS (Royal Bank of Scotland) and its insolvency arm GRG (Global Restructuring Group), and of HBOS Reading emerged prompting investigations into the way the major banks treat their SME customers.

In July, the FCA (Financial Conduct Authority) announced on completion of its RBS investigation that its “powers to discipline for misconduct do not apply and that an action in relation to senior management for lack of fitness and propriety would not have reasonable prospects of success”.

Andrew Bailey, FCA Chief Executive admitted that its inability to take action should not be seen as condoning RBS’ behaviour.

Earlier in the year UK Finance, the trade body for banking and finance, had appointed Simon Walker CBE – the former...

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Why the big four auditors are under intense scrutiny – an update

insolvency legislation Nov 23, 2018

Following the collapse of the company Carillion in February this year the role of its auditors came under the spotlight and investigations were promised, notably by the FRC (Financial Reporting Council) and the CMA (Competition and Markets Authority).

The reason for this was that the business had won several large public sector contracts, among them to build two hospitals, and also because its collapse put a number of subcontractors and jobs in jeopardy. However, primarily it was because its financial health was revealed to be considerably shakier than the directors had suggested.

The company’s annual audit had been carried out by KPMG, one of the big four auditors, and in March 2017 it had expressed no concern over reported profits of £150m, even though four months later these proved to be illusory. Perhaps they may have been reassured by the company’s ‘internal auditor’, Deloitte, which might also be looked into since it may have involved helping...

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Brexit, SME confidence and contingency planning

brexit planning smes Nov 20, 2018

Considering that SME confidence has been plummeting for some months now, last week’s crescendo of Brexit mayhem following the announcement of a mutually acceptable EU-UK draft agreement could hardly have been less helpful.

The 500-plus page document was only released to Cabinet members on Thursday, yet the Brexiteer objections and calls for resignations began well before any of them could have read or digested the details and it is questionable whether there was any comprehension of the implications of the contents or their consequences for businesses.

The suspense will doubtless continue this week, as we wait to see whether enough MPs submit letters to trigger a vote of no confidence in the Prime Minister and whether the document will even be approved in the House of Commons.

If it is not, what then – leaving the EU with no deal at all?

How can SME confidence be maintained and what price contingency planning?

Back in October the FSB (Federation of Small Businesses) had...

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Corporate boardrooms – a hostile environment for female executives?

Despite the depressing picture of a decline in the number of women holding senior executive positions in FTSE companies, there have in the past been many impressive female leaders such as Rani Lakshmibai, the Queen of Jhansi in India, who led her troops in battle (with her baby son strapped to her back) during the Indian Mutiny/First War of Independence in 1857.

In July this year the UK’s Cranfield Institute published the results of its 20th FTSE Women on Boards Report which reported a marked drop in the numbers of female CEOs (chief executive officers) and CFOs (chief financial officers) and other executives on the boards of FTSE 250 companies and that the numbers had remained static for FTSE 100 companies.

It found that there were 30 women in full-time executive roles at FTSE 250 firms, down from 38 last year, equating to just 6.4% of the total, and of these there were just six female CEOs and 19 CFOs.

Although the numbers of female executives in FTSE 100 companies had risen...

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Is fear for the future the explanation for a rising number of insolvencies?

cvls insolvency smes Nov 08, 2018

The increased number of insolvencies, largely due to CVLs (Creditors Voluntary Liquidations) between July and September this year is a worrying, but hardly a surprising, trend.

There has been a gradual upward trajectory in insolvencies for much of 2018 but it seems to be accelerating. The latest figures, for Q3, show an increase of 8.9% on the previous quarter and an increase of 19.3% compared with Q3 in 2017. CVLs make up the bulk of the quarter’s insolvencies at 71.6% of the total, that is 3,083 out of 4,308 and the highest number of quarterly CVLs since January to March (Q1) 2012.

As for much of the year the construction industry had the highest number of insolvencies in the 12 months ending Q3 2018, followed by the wholesale and retail trade and the repair of vehicles industrial grouping.

For some time now, it has been clear that businesses have been holding back on investment for growth given the climate of uncertainty that the economy has been in for two years now, and...

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What are the benefits to SMEs of collaboration with corporates?

business growth smes Oct 25, 2018

The 2018 Global CEO Outlook by KPMG found that 70% of the 150 UK CEOs involved were in favour of collaboration with start-ups and SMEs.

Many cited the benefits to them of collaboration helping them to drive innovation to remain competitive and support their growth objectives, particularly where new businesses in the tech sector can help their larger partners to become more agile.

Collaboration is not a one-way street

One of the difficulties cited with collaboration, however, is achieving the right fit in terms of shared aspirations and culture. So, it is important that potential misunderstandings are ironed out before working together.

Both sides should want to establish a relationship based on trust which includes understanding others’ as well as their own needs and agreeing how any shared knowledge will be used. Equally, both sides need to be prepared to learn and this may be more difficult for those involved in a large corporation, where there are often clear and...

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Is the insolvency of your business a failure?

Like old buildings that are decaying or no longer fit for use, businesses often need to be pulled down and rebuilt. Should this be regarded as failure or renewal?

There are three definitions of failure in the Cambridge Dictionary: 

  • Someone or something not succeeding;
  • Not doing something that you must do or are expected to do;
  • Something not working or stopping working as well as it should.

Much has been written about the role of directors and how it contributes to the failure of a business but less about the lessons that can be learnt and how they contribute to the future success of entrepreneurs.

Failure is something the business writer and chairman of Risk Capital Partners, Luke Johnson, has written about and must have had further cause to reflect on following his injection of £20 million into Patisserie Valerie, which recently announced that it was in danger of imminent collapse after what may turn out to have been the subject of accounting and auditing...

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Should SMEs consider appointing non-executive directors (NEDs)?

small business smes Oct 16, 2018

It is hard for SME directors to step back and look at the bigger picture when they are so immersed in day-to-day operations. Could they benefit from having experienced and objective non-executive directors (NEDs)?

Research carried out by law firm TLT, University of the West of England and the Association of Chartered Certified Accountants this summer suggested that SMEs did not understand how to recruit or engage with NEDs. The conclusion was that smaller firms with NEDs were not benefiting as much as they could.

What does a non-executive director do?

The NED is an independent director, who sits on a business’ board of directors but does not form part of the executive management team.

NEDs’ primary responsibility is to attend board meetings and crucially to turn up prepared having read the board pack and researched the key matters that require decisions. They should also monitor reports and carry out their own review so they can ask pertinent questions with view to...

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An update on the business rates and appeals fiasco

In August it was announced that HMRC had sent in approximately 25 staff to the Valuation Office to fix the business rates appeal portal, which had been repeatedly cited by businesses as being impossible to use.

As the only mechanism now available for appealing non-domestic rate revaluation, the portal has been cited as the chief reason for an almost 90% reduction in appeals since the 2017 revaluation and just before this blog was due to be posted an article in The Times reported that a Government survey has revealed that almost nine out of ten businesses in the first stages of making an appeal using the portal were dissatisfied or very dissatisfied with the new system.

In the meantime, the numbers of business failures, particularly in the retail sector has continued to climb; many attributing the rise in rates as a factor.

Altus Group, a ratings adviser, reported in August that bailiffs had visited 81,000 businesses because of business rates arrears – an average of 222...

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