For non professionals the way technology is harnessed has for some become inseparable from their sales proposition. This is a lesson professional firms must also learn if they are to survive and prosper. This will inevitably involve the cloud which presents a great opportunity to use a collaborative model to deliver a seamless level of service to clients. Services that are invisible will still be valued by clients as long as they address their “pain”. Identifying where their pain is is key as in the case of all personal service businesses.

The current generation will also expect professional firms to engage on-line. Effective use of social networking will enable firms to expend quickly, in conjunction with a complimentary face to face networking strategy. To say that networking is the new marketing may be a cliché but is undeniable for personal service propositions where the meet,like, know and trust model is the status quo. Linkedin replicates this model on-line and gives firm the opportunity to establish creditability by contributing to on-line conversations. To use another networking model think about it as visibility and creditability as a route to profitability.

The opportunities are out there to stand above the crowd. Competitors such as supermarkets and banks may try to enter the traditional markets of professionals but as long as professionals are competitive, proactive and focus on where the value is for them (and their clients) the future is not all doom and gloom.

Accountants will be experiencing this with services such as payroll, whereas lawyers will be .looking at conveyancing, for example. Anything that can be reduced to a process will be commoditised in the natural course of business.  The trick as I see it is to recognise this and then embrace technology so as to be able to deliver it. This will enable you to retain clients and have a captive audience to sell more value added services which can command an hourly rate, as opposed to being a fixed price proposition. Hourly rates are clearly subject to market forces but give the opportunity to demonstrate benefits more easily that offerings that have been commoditised by the market.

For non professionals the way technology is harnessed has for some become inseparable from their sales proposition. This is a lesson professional firms must also learn if they are to survive and prosper. This will inevitably involve the cloud which presents a great opportunity to use a collaborative model to deliver a seamless level of service to clients. Services that are invisible will still be valued by clients as long as they address their “pain”. Identifying where their pain is is key as in the case of all personal service businesses.

The current generation will also expect professional firms to engage on-line. Effective use of social networking will enable firms to expend quickly, in conjunction with a complimentary face to face networking strategy. To say that networking is the new marketing may be a cliché but is undeniable for personal service propositions where the meet, like, know and trust model is the status quo. Linkedin replicates this model on-line and gives firm the opportunity to establish creditability by contributing to on-line conversations. To use another networking model think about it as visibility and creditability as a route to profitability, just remember the extra effort you need to make on-line to ensure that you engage potential customers.

The opportunities are out there to stand above the crowd. Competitors such as supermarkets and banks may try to enter the traditional markets of professionals but as long as professionals are competitive, proactive and focus on where the value is for them (and their clients) the future is not all doom and gloom.

We have all been there….. First day nerves, feeling worried about what     to expect from day one in your new company.

• Will everything be as promised at the interview?
• OMG can I do the job?
• Will they like me?
• What is the culture like?
• What will I be expected to do in my first week?

Research from Massachusetts Institute of Technology has shown that socialization techniques lead to positive outcomes for new employees such as higher job satisfaction, better job performance, commitment to the organisation and better retention.

This research has prompted some companies to recognise the benefits of implementing a formal on-boarding (Induction) programme to support new employees before they even start their new role.
The aim is to engage new recruits from the start, so why often does it go so badly wrong?

Remember counter offers do occur and this generally takes place ahead of your new recruit leaving their current organisation to join yours!

Sadly on-boarding is all too often overlooked; so please do remember new recruits are watching you very closely during this period, they are also assessing you it is of course a mutual thing! They’ll be challenging their decision making, did they make the right decision to join and also should they stay! Week one is the most important week, it simply boils down to “make or break”!

So how confident are you that recruitment and on-boarding processes are bringing about the benefits listed above?

Are you:-

• Confident that you are easing this transition for mutual gain?
• Making employment offers that are rejected?
• Facing counter offers by existing employers?

Clearly recruitment search and selection costs directly and indirectly, so you need your return on investment! Equipping new recruits post acceptance of employment will help engagement through understanding company values and priorities before they even walk through the door on the day one!

Why not take advantage of our free 90 minutes HR support, all you have to lose is 90 minutes! A fresh pair of eyes could add significant value to your recruitment search and selection practices so contact us! Alternatively see here for our handy hints and tips and the costs associated with getting it wrong!

HMRC again fell well short of convincing the Tribunal of their contentions that IR35 applies in the recent decision of Marlen Ltd, represented by our sister division, Accountax Consulting. The case under appeal was in relation to engineering services provided by Marlen Ltd, and Mr Hughes, to two JCB divisions under a series of contracts.  Accountax argued that this was a situation where the IR35 legislation did not apply and the Tribunal emphatically agreed with Accountax!

It was Mr Hughes’s flexibility in terms of hours, holidays and absences that the Tribunal found to be markedly different to employees and, when considered in light of all the elements within this important factor, concluded the degree of control was not sufficient to constitute a contract of employment.

HMRC’s contentions that mutuality of obligations existed within each contract (having accepted there was no on-going mutuality) also bore no reflection of the facts. Crucially, and as in the case of MBF Design Services Ltd, Mr Hughes, as all contractors, had been sent home without pay when the computers were down. In addition to early terminations by both parties during the course of the engagements, the evidence was compelling that this was a case where no mutuality of obligations existed. In summarising all the factors, the Tribunal did not find one single aspect which was consistent with a contract of employment.

With such a string of defeats one asks whether HMRC will change their approach to IR35 cases, since it is becoming increasingly apparent that the cases they are choosing to pursue are not within the ambit of IR35

Every so often something happens which challenges our set assumptions about an important aspect of life. Remember the advert showing a ‘hoodie youth’ hurtling towards a person walking down a narrow street? The immediate assumption was that an attack was taking place but the camera lifted to show the youth was getting the person out of the way of something falling from a great height. Object of loathing to hailed saviour in a swift change of shot. Something similar is happening in the world of people management.

Remember that old chestnut of training providers – ‘Dealing with Difficult People’? Strategies are taught which aim to help the manager deal with those people they would really prefer not to have around. So what are the assumptions behind this situation?

• The employee has a negative attitude and needs to change?
• They have a dislike of authority and need to know their place?
• They are too cocky by half and need to learn some respect?

But, changing the shot, what if it was the company that had let the employee down? The failures might include:

• Failed to communicate clear expectations,
• Failed to provide a clear line of sight between their job and what the company is trying to achieve,
• The manager failed to provide timely and accurate feedback on performance,
• Appraisal focused far more on doing something about weaknesses than showing appreciation for the positive aspects of performance.

The sea change that is taking place is that many employers are waking up to the idea that their whole system of people management should be focused on the idea of ‘playing to strengths’. Moreover, it is part of running a company in a way that really energises and engages staff and leads to exceptional performance. Leading organisations like Tesco, Aviva, Panasonic and Santander are applying it in recruitment, learning and development, management learning and team development. Growing organisations, like Cougar Engineering, I-Spy Marketing and QVC, are using it to transform the way in which they organise their people to ensure that the company vision, performance aspirations and ‘a great place to work’ are achieved.

So what does break the log jam of moving from a way of managing people based on old assumptions to a more positive and engaging way? Many organisations have found that it’s helping people to identify their strengths or natural talents and then engaging in conversations about what they want to do more of.

Over the coming months we will be introducing you to different examples of applying this approach in practice covering the range of people management processes. One tool we have found effective in introducing ‘strengths at work’ is the Strengthscope assessment tool. If you would like to be one of a limited number of people to try out this tool for free, including administration costs and feedback, contact Roger Wythe at the Learning Connection.

In my view this can be achieved by taking three key steps:

• Productisation
• Collaboration
• Harnessing new technologies.

Productisation at the micro level can be simply moving from a time based pricing model to a fixed fee pricing model. This will give the attribute of certainty to sales offerings, which is more important than transparency in my experience. For bigger businesses it can be a software offering based on a consultancy process. The advantage of software in this context is its ability to generate recurring income, particularly using the software as a service model.

Micro business must form collaborations with professional partners in order to extend their sales proposition and compete with their bigger competitors. Team building and outsourcing is more important as the business grows. Micro businesses should focus on collaboration initially, particularly if they are service businesses, in order to generate new work and develop a stable sales proposition. This can then be delivered with in-house staff or outsourced, as the business grows.

Tailoring sales propositions to match the perceptions of current and future customers is important and businesses must be clear whether they are offering what I call “commodity based services” based on price or more bespoke services based on a value model. If the latter, then services must have demonstrable  benefits for customers.

Micro businesses have the advantage of being able to adopt to new technologies quickly. The cloud enables rapid growth to be achieved and lack of infrastructure is no longer a barrier to launching new business ideas if they can be delivered via the internet. The need to put infrastructure in place should be growth driven so that costs can be controlled.

All the above should be leveraged by small businesses in order to achieve growth. I like to practice what I preach to my clients and am currently setting up a Professional Panel to help leverage growth within my own firm and enhance the services I can offer clients.

Are you leveraging all the value in your business? If not please contact me as I am always happy to have an informal chat to see if I can help.

Robert Bradley

Robert: How do you see businesses fairing this year? Paul: We have some interesting times ahead, it’s certainly not all doom and gloom. Some businesses will see more, bigger and better opportunities than there have been for a good number of years, as competitors go bust, customers make decisions they have put off for a while, new products and services are developed. Growing businesses face their own challenges – it’s all too easy to focus on growing the top line, getting the production out but forget about the cash. After all, you did not set up in business to manage the cash, you set up to do what you do, because it’s what you enjoy and are good at. Yet cash is the oil in the engine of your business. And any engine without enough oil will fail, regardless of how well the rest of the machine is put together.

Robert: Yes I agree and how should businesses manage growth? Paul: As business grows, the owners role within the business should change. They must learn new skills, look at issues from more than one viewpoint. If they are the ‘technician’ behind the business – the person with the know-how – they need to learn the ‘entrepreneurial’ and ‘managerial’ skills that become ever more crucial as the business grows, take on more people and move into different markets. It is also important that they should never stop learning, and keep asking themselves whether they have got the right balance between the three roles of technician, manager and entrepreneur. Whenever they look at any issue in the business, including its cash flows, they should try to look at it as if wearing each hat in succession. Most of their competitors will not do this, and that is why they should: it’s what will make them different, their growth sustainable and their business stronger.

Robert: What are the strategies needed to achieve good cash flow? Paul: Business owners should take a real, and deep, interest in cash flows, both on a strategic level and daily basis. While cash flow management is an area that they may be able to delegate, they should not confuse effective delegation with abdication of responsibility. Cash flow management shouldn’t just be delegated to the accounts department and forgotten ; they should be challenged all the time and the business owner should fully understand the starting position; know what to expect going forward and what is happening and what their options are each and every day of the week. In other words they should approach this on the basis that they, and no one else, are ultimately responsible for managing the cash flows of the business, including the initial planning, the ongoing control and the driving of the implementation stages!

Robert: Yes I agree but what else can they do? Paul: They should identify where the potential weaknesses in your cash flows lie. Typically for growing businesses these are in late debtor receipts, bad debts, excessive reliance on too few customers, or overstretching their production capabilities. Business owners should try to reduce your risk of their business ‘overtrading’ in the areas they identify. For example, will their customers supply them with free issue material? What will they do if the finance market further contracts and they cannot find the cash to buy that much needed piece of equipment? Can they buy in production capacity as and when needed without compromising quality or profits? They should ask themselves what else they should be doing do to bring more certainty to their cash flows, and then do it.

Robert: and what about planning? Paul: In my experience too many businesses trust to luck and fail to plan ahead in the short, medium and long term. They should stress test their cash flow statements and understand what happens to their cash flows at different turnover levels, they will be surprised at how much these can differ. And have plans B, C and D, which can be put in place quickly, should (or should I say ‘when’) things do not turn out quite as you would expect. Business owners should accept that just because they know that their actual cash flows will not work out as you set out in the early cash flows this does not make their planning a worthless exercise – they will learn a lot about the mechanics of their own business from producing and understanding the cash flow statement. And as they go along, continually update the business cash flow statement. It shouldn’t just put it in a drawer and forgotten. It must be retained and used as a key tool for managing the business.

Robert: Do growing businesses need more cash? Paul: Yes..all businesses that grow need more cash, even if the cash flows don’t show it! Understand, I mean really understand, what the key drivers are for that increased need and plan ahead, identifying and assessing all the options for satisfying those needs. Funding options should be discussed with experts in the field. Business owners shouldn’t try to go it alone, they will not identify or know how to access or recognise the advantages and disadvantages of all the alternatives. They should be prepared to look at non-traditional funding solutions and to compromise. They should consider giving up some of their business in return for the cash they need to grow it if needs be – after all, the days of bank equity style lending have gone, and will not return for a good many years to come.

Robert: Is this a good time to make decisions? Paul: yes, if business owners have been deferring taking key decisions in the business, they should take them now. Growing their business will put it under more strain, decisions they have deferred could push the business to breaking point some time later on. They shouldn’t expect all their decisions to be a success, but at the same time shouldn’t allow fear of getting it ‘wrong’ to get in the way of making a decision now. It’s a case of feeling the fear but doing it anyway.

Robert: and how about competitors: Paul: it’s important to get the right balance between the short, medium and long term and daring to do something different from the competition, even if it costs them in the short term. Business owners should allow enough money within their cash flows to continually innovate and improve what they do and how you do it. Now is an ideal time for them to steal a march on their competitors, because for many of them, their sole focus will be on the short term, keeping their immediate costs down. While competitors sow the seeds of their ultimate downfall, business owners can sow their own seeds of long term success.

Robert: Isn’t it possible to over commit though? Paul: Yes business owners shouldn’t over commit the business in terms of overheads. Spend should be focused on things that drive your business forward – at the moment lenders and investors don’t want to see you spend their money on ‘luxuries’. And business owners shouldn’t be greedy – the needs of your business must come first, their wish list can come later on. In essence business owners should focus on net benefit rather than cost. They shouldn’t focus on the pure here and now cash cost of an item, but rather consider the net impact that spend will ultimately have on their business. Back in the 19th Century John Ruskin said ‘It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.’ It was true then, it remains true today, yet most of a small businesses competitors will ignore Ruskin’s words and simply go for the cheapest.

Robert: Have you got a final thought? Paul: Yes I have and it’s this..business owners should work closely with their external accountants, they should be an integral part of your decision making process, part of your inner circle management team. They will see things business owners would not otherwise and their business decisions will be more rounded. And if their external accountants are unwilling or unable to provide the support you need, then they should be replaced. Just because a business is growing doesn’t mean its engine will not come to a grinding halt if the business owner doesn’t make sure its oil, its cash, is well topped up. It’s hard work making sure a business has enough cash to finance its growth but it’s a challenge business owners must take on if they are to achieve that growth without risking all.

Robert: Paul, thanks for that, some useful advice for all of us. Paul: You’re welcome

Most owners of small limited company businesses are doing all they can to save money right now.  Many do so by taking the bulk of their drawings from their company by way of a dividend rather than remuneration through the paye system.  They do this because it saves national insurance, a large and growing number.  However, this is not without risk because unless they follow all the procedures for legally doing so (and most owners have no idea what the procedures are!), if the company later goes into liquidation or administration its insolvency practitioner will simply ask for the money back.  In broad terms, as  the dividend payments are made an overdrawn director’s loan account is created (an amount the business owner owes to the company).  However as the credit entry writing this off either is invalid, because the procedures to validate it have not been followed properly, or the entries have not been made (for example with late dividend payments), the debtor balance is repayable.  And there is no margin for error, mistake or omission in the procedures – you either get them right or not.

Let’s go back to a few basic principles arising from the statute and case law on this subject:

1. The law requires that all administrators and liquidators investigate companies over which they are appointed.  One of the purposes of that investigation is to ascertain whether monies could be recovered for the benefit of creditors.  The insolvency practitioners’ prime duties are owed to the creditors, not to you the director/shareholder of the company.  One source of potential recovery of assets is from you, if you have taken illegal dividends.
2. Dividends can only be paid out of distributable profits.  In broad terms this is the balance shown on the company’s balance sheet for its ‘profit and loss account’ – the total profits (less losses) you have made over time but not paid out.  If the company does not have a positive profit and loss balance, then you cannot legally pay yourself a dividend.  If you do so, the liquidator or administrator will ask you for the money back because all you have done is create an overdrawn director’s loan account.
3. Assuming your company has ‘distributable profits’, you still have to go through several legal hoops, and at the appropriate time, to be able to safely draw dividends from them.  You cannot go through these hoops later on, after the company has gone into insolvency as one accountant recently tried on a case I am dealing with – again you will be asked for the money back.  Insolvency practitioners see many cases where the paperwork doesn’t exist because the paperwork has been left for the accountant to sort out when he prepares the annual accounts.  Often the company goes into liquidation before the paperwork is prepared.
4. Accounts have to be drawn up on a proper basis proving that the company has sufficient distributable profits to pay the dividends – these can either be the previous year’s filed accounts or more recent management accounts but either way, they have to be drawn up using proper accounting principles – a ‘back of a fag packet’ exercise will simply not do.
5. Having demonstrated the company has sufficient distributable reserves to pay the dividends, you then have to hold a meeting of the members authorising its declaration and payment.  This meeting has to be properly recorded, even if you are the sole shareholder!  If it is not properly recorded, any dividends you have taken will be illegal and repayable.
6. Those minutes have to show that you have properly considered the effect of the dividend on the future viability of the company.  If the dividend leaves the company in a weakened financial position, prone to collapse, it can be upset by the insolvency practitioner: you could see yourself sued for misfeasance (thecourts have held that the taking of excessive dividends gives rise to an action for misfeasance) and you could also be banned as a director.  This is because the reasonableness of your actions will be assessed by both the insolvency practitioner and BERR, and if you have not done as the man on the Clapham omnibus would have done under the circumstances, if your actions have exposed the company’s creditors, you will be held accountable.

In conclusion, there are real drawbacks to taking dividends from a weakened company.  Most small business owners simply go into these things blind, thinking that they can what monies they like from their company how and when they want and somehow backfill later, deferring the paperwork to their accountant.  To do so is very risky indeed.  To reduce the risks of personal attack from an insolvency practitioner or the Revenue, all the right procedures have to be gone through at the right time, and that costs money, eliminating some of the savings made.   On a practical level an insolvency practitioner will not query your reasonable remuneration passing through the paye system but he will look to you to repay even small amounts of dividends paid illegally.  And he will always report illegal dividends to the DTI, who could ban you from being a director.  And he could sue you for misfeasance.  But it’s even worse than that!  HM Revenue & Customs could also ask you to personally pay the tax on the money you have taken from the company – they can treat the money paid to you as net remuneration and gross it up.

If you go to an accountant on the basis of expense in an attempt to save money, and as a consequence you do not work closely with him/her and fail to do all the right things at the right time to record and justify any dividends you take, you are risking yourself unnecessarily.  It’s far better for you to merely pass your drawings through the paye system and pay over the tax.  This is yet another instance where scrimping on professional support or picking the wrong accountant can cost you very dear indeed.

Paul Brindley

Midland Business Recovery

• The ability to change their sales proposition as their marketplace changes
• An awareness of ow to gain business through networking and how to integrate it with social media
• The ability to quickly employ cloud technology and make the necessary changes to their business model

The cloud will change many businesses models going forward. This in turn will give smaller businesses th e chance to compete with bigger ones as they are potentially able to regulate their cost base more easily.

Marketing is increasingly more about endorsement by testimonial and this is where small personal service businesses can capitalise. They can also leverage the trend to brand their businesses based on their personalities as owners, not unlike Richard Branson, who was surely the master of this.

Smaller businesses need to take action as new opportunities arise.. the Americans do like to say that “the action takers are the money makers” and this is hard to dispute.

“Action” in this context may mean developing added value or fixed price propositions, profiling clients, developing new products, developing cloud based business propositions or harnessing technology to improve operational efficiency.

What is certain is that smaller businesses must take advantage of their agility and  employ proper processes and strategies. There is no room for “self-employed” thinking only “business thinking”.

This will be a recurring theme of mine I will be elaborating on this year so please revisit my blog for more on how to take your business forward in 2011.