Does the Government understand UK SMEs’ problems?

cash flow hmrc sme smes Apr 25, 2019

A recent fiery opinion piece in the London Evening Standard by Rohan Silva accused the Government of failing to help and therefore destroying UK SMEs.

While most of his ire was directed at the Chancellor, Philip Hammond, due to the 2017 increase in business rates, Silva also alleges: “Poorly implemented plans to make tax digital are costing companies thousands of pounds to become compliant. Big increases in the amount firms have to pay towards pension contributions are making it more expensive to employ people.”

According to the Federation of Small Business (FSB), the business rate increase means the average small company in London now has to find £33,000 a year simply to cover its rates bill. That’s on top of paying rent, NI contributions, corporation tax and running costs. Significant increases in the minimum wage haven’t helped many SMEs either although unlike the other burdens it has benefited employees.

It has become increasingly and...

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First two companies named and shamed over late payment

In March the first company to be named and shamed by the Small Business Commissioner Paul Uppal over late payment to a SME was announced.

The Office of the Small Business Commissioner launched an official investigation into the payment practices of the Jordans & Ryvita Company.

Using his new powers for naming offenders the Commissioner investigated Jordans & Ryvita on behalf of small business Magellan Design Ltd, which was owed approximately £5,000. As a result, the money was paid together with a further £1,400 in late payment interest.

This week the results of a second investigation, this time into health food retailer Holland & Barrett, were revealed. It was launched after a complaint from an IT company, which had asked not to be named, over an unpaid invoice of £15,000. The invoice took 67 days to be paid, well outside the company’s contractual agreement of 30 days.

Mr Uppal found that Holland & Barrett had “a purposeful...

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Can zombie and critically distressed businesses be resurrected from near-death?

cash flow smes Mar 19, 2019

More than one in ten (11%) UK businesses is a zombie business at the start of 2019, according to the Business Distress Index produced by the insolvency and restructuring trade body R3.

The figure rises to 16% of businesses in the North East, according to the Newcastle Chronicle, and the state of many more UK businesses is graphically illustrated by research from Begbies Traynor’s most recent Red Flag Alert, which showed that the number of businesses in “critical” distress leapt by a quarter to 2,200 in the fourth quarter of 2018 while those in “significant” distress remained roughly flat year-on-year at 481,000.

A zombie business is generally defined as one that is only able to pay the interest on its debts, not repay the principal debt.

As such, economists argue, these businesses act as a drag on investment, productivity and the economy, because they do not have the available capital to invest in new operations, products, or services, while the...

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Predatory investors behaving like unscrupulous bankers

Ten years after the lending culture that resulted in the 2008 Great Depression it seems that the behaviour of some investors is no less predatory and unscrupulous than those of bankers 10 years ago.

Recently FanDuel, a fantasy sports site, was sold by its Private Equity investors to Paddy Power Betfair for $465 million. So far so good. However, despite the sale price the ordinary shareholders got absolutely nothing.

The background to the investment is that the business was regarded a Unicorn company (a privately-held start-up valued at more than $1 billion) with it having more than 6 million daily customers in America.

Two Private Equity investors, KKK and Shamrock Capital, provided funds, based on a valuation of at least $1 billion. However, I am sure that the actual investment was based on a mix of debt and equity with a tight agreement that included a drag-along provision that was binding on all shareholders and allowed them to force...

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Why do so many CVAs fail?

cash flow cva insolvency smes Aug 22, 2018

My blog earlier in the year (17 May) asked whether the use of CVAs was “a triumph of hope over reality” as they had been increasing noticeably in the High Street retail sector, which has suffered an escalating rate of insolvencies.

A CVA (Company Voluntary Arrangement) is generally used to help a company in financial difficulties by restructuring its balance sheet and reorganising its operations to survive and trade its way out of insolvency. A key aspect of the financial restructuring is reaching agreement with creditors for payment of a lump sum or regular payments over a defined period which is typically three to five years where the payments may be less than the amount owed.

Instigated by the directors, approval of a CVA requires 75% of unsecured creditors where the payment terms are binding on any dissenting creditors providing they are less than 25%. Generally, the earlier a business enters a CVA the better, although they can be used as a means of dealing with a...

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SMEs, cash flow forecasting and resilience

cash flow smes Aug 06, 2018

The CEO of a business finance provider, Richard Pepler, of Optimum Finance Ltd was recently reported by the publication Business Matters Magazine to have suggested that entrepreneurs should take a business competency test similar to the driving test before being allowed to set up and run a company.

In fairness this was in the context of his stressing that cash flow forecasting and up to date management accounts were essential documents for a business to produce and monitor regularly.

This makes sense given that a recent survey of SMEs by American Express revealed that 46% of “senior decision makers” had reported that cash flow issues were distracting them from focusing on elements of business growth such as product development and marketing.

As my regular readers will know, I, too, emphasise that regular preparation and scrutiny of management accounts and cash management schedules are fundamental to business survival, resilience and business growth.

Why cash flow...

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