So you’ve built up your business and reached that stage in life where you question if it is still right to continue. Why and when you should consider exiting your business is critical on both a business and personal level and in this article we explore these reasons to support your decision.

Why might you chosse to exit your business

There are a wide variety of reasons why you may be contemplating an exit for your business. Exit considerations stem from a number of different motivations including:

• Retirement or health issues;
• Realising cash value to secure financial wellbeing;
• To accelerate the growth of the business;
• Unlocking cash for new investment opportunities; and/or
• Responding to one or more unsolicited approaches;

Each of these motivations requires different strategies to be put in place so forward planning is imperative. The decision to exit is a very personal one and there are no right or wrong strategies; but being prepared will benefit you in all instances. Many people deliberately or by chance, slow down in later life and businesses and colleagues may not love youfor that. Whilst you may once have been the hungriest worker on the block, perhaps it is time to pass over the mantle. Perhaps financially you can maintain a shareholding and gain more financial reward watching someone else progress your start.

Good preparation will not only broaden your options in the long-term but will also allow you to shape the business for your desired exit route and help identify and prepare an appropriate successor should you wish. The goal will always remain the same; you want to achieve the best possible price from a purchaser that offers the best fit with your business.

From the outset, it is vital that all shareholders are in agreement regarding the exit strategy. Any differences of opinion need to be ironed out early on to prevent problems arising when the plan is put in action.

Your long-term plans for the business also need to be clear from day one, especially if you are looking to find a partner to accelerate growth. They will want to know how long you intend to stay with the business so a considered and credible response is essential.

When is the right time to exit your business.

The optimal timing of an exit will depend on several planets aligning: your businesss trading position, the appetite among buyers and investors and the shareholders objectives. These need to be coupled with your own personal position.

If your business has delivered several years of healthy revenue and profit growth, has visibility of this being sustained in the medium term, you can be sure of buyer interest; striking while the iron is hot is key.

The development of a clear exit strategy is vital even when a sale is not imminent. Being prepared to exit puts you in a much stronger position for when the opportunity arises. It also gives you time to explore the different exit routes available to you and lay the foundations for a successful process.

That being said, a strategy will ready you for a sale but it will not ensure that buyers or investors pay a premium, especially if your business has unresolved issues. In order to achieve the highest possible valuation, the best time to exit is when your business is in a position of strength. To determine this, several key factors need to be considered:

• Can the business continue to prosper without you
• Have you considered your replacement
• Are you in a position to simply sell-out
• Do you have a good, defensible market position
• Does your company have the ability to scale
• Are your products or services clearly differentiated in their markets
• Have you enjoyed two or more years of sustained revenue and/or profit growth
• Do you have good visibility over the current years financial performance

If the answer is yes to these questions, maybe now is the time to set the exit wheels in motion.

Tom Phipps is a director at Livingstone London

Related: Steve Dolton has been through five exits as CFO, most recently with National Accident Helpline. He shares his 8 steps to preparing a business for sale.

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HMRC Scam Letters

If you received a letter or email about your tax, could you tell if it was a scam HMRC letter? Could you tell the taxman apart from a criminal? Whilst the physical differences in appearance may be stark, when it comes to communication, it can sometimes be hard to tell a fake HMRC letter or email from a real one. The cost of scams in the UK is estimated at about £190 billion each year. It is critical businesses can spot small signs suggestive of scams and processes are in place to protect themselves. This article supports spotting scam letters and help you see the signs.

For years, digital criminals have targeted taxpayers as the next big fraud victims. In 2013, HMRC said customers reported 91,000 phishing emails attempts at conning small business owners, with promises of a tax refund, into giving away their bank card details.

Back then, the fakes were relatively easy to spot. A dodgy email in broken English would urge recipients to click a suspicious-looking URL to a web form. No wonder HMRC adopted a policy of never sending official emails.

But lately, the sophistication of these scams has levelled-up. Our clients, as well as our own firm, have been targeted by a new wave of spam with quality that appears far more authentic than ever before.

How to spot a fake HMRC letter?

The new generation of fraud comes in printed letters as well as emails, it targets customers of HMRC or Companies House and is written in a far greater quality than its predecessors. The perpetrators behind these attempts have clearly read a lot of mail-outs from government agencies, as their modern phishing attempts closely mimic the language used in official notices, making it very hard for recipients to tell a fake HMRC letter from the real thing.

The logo reproduction on these fraudulent message has vastly improved and the fake website links they use are a lot less suspicious. Even the emails” “from:” field now closely resembles government agencies” own.

These days, I have to spend much more time trying to spot a fake HMRC letter from the genuine notices. Our company and clients get around five of these letters a week via post, taking us up to 30 minutes a month to check over. And we get loads of phishing emails every day. Phishing 2.0 is building to become a big drain on UK productivity.

HMRC Scam Text Messages

Crucially, this generation of phishing is much more insidious. We continue to get the classic hoax notice requesting payment for overdue tax returns, but also a new wave of more sophisticated scams.

Recently, a fraudster wrote to us, having noted our recent trademark application on a government site, requesting that we pay them within a set time, lest our trademark be revoked. The attempt was deceptive, but it traded on a kernel of truth. These guys are targeting companies with overdue tax returns, demanding payment be made to them, not to the Revenue.

This happens because a transparency drive has helped put more information about small businesses online for all to see. Companies House now shows company director, address and filing status information for free and fraudsters are mining it to spam legitimate, busy business owners.

But they aren?t just posing as government agencies. The list of business functions which the criminals are targeting is growing. We recently received an official-sounding notice from a company demanding payment for a photo we used on our website, purporting to be a copyright fine. That email actually came from a legitimate company but one that should not be conning businesses into coughing up for things they don’t have to.

As an accounting practice, we also get phishing attempts specifically geared toward gaining our HMRC portal login codes, so that fraudsters could reap refunds from our clients. It means we have had to step up to employ strict new security awareness measures.

These fraudsters are presenting British businesses with a headache they could do without. You should be spending your time making more money and growing your customer base, not identifying forged communications. But there are steps you can take to ensure you don’t fall victim.

What to do if you get a fake HMRC letter

Don?t click on email links

If the email concerns your tax or financial affairs, assume an ulterior motive. Instead, manually type in the URL.

Never give card details to an electronic request

Don?t pay up via the form they want you to. Instead, go to the HMRC website, check amounts owing and pay from there.

Seek professional help

If you are represented by an accountant, let them take care of it. They have a keen nose for a fake HMRC letter And also know the true positioning of your account.

Ask the tax man

If you don’t have a firm on the books, go to the source. Validate with the company from whom the message purports to have been sent, and find out whether the request was genuine.

Tool up on tech

Use the latest anti-virus software and email spam filters. You would be surprised what the latest updates can stop from ever getting through.

Lay down the law

If you have employees, you need to set out rules for dealing with mailed or emailed payment requests. Staff should always be aware of the above best practice and never put company finances at risk.

The Pandle phishing document

Lee Murphy is the owner of accountancy software Pandle.

Summary

Always ensure you consider the possibility of Scam HMRC letters and follow the guidance to make sure you and your business do not become a victim of fraud.

Have a look at these hilarious excuses for missing your tax returns.

The post Could you spot a scam HMRC letter or email appeared first on Real Business.

If you are self employed, there are certain expenses that you can deduct from your income to calculate the tax owed on your business profits.

You can claim costs incurred in the following broad areas of your business as expenses if you’re self employed:

• Office, property and equipment, 
• Car, van and travel expenses, 
• Clothing expenses, 
• Staff expenses,
• Reselling goods, 
• Legal and financial costs, 
• Marketing, entertainment and subscriptions,
• Training courses

These categories of expenses are made up of costs that you will incur when running your business and that HMRC agree can be deducted from your total income to determine your business profits. The amount of tax you owe to HMRC is based on your business profits after allowable expenses have been deducted.

Read on as we cover how to determine if you’re self employed and further detail on the types of things that can be claimed as an expense when submitting your annual self-assessment tax return.   

What Are Expenses?

When you’re self employed, expenses are the costs that you incur when trying to generate income for your business. For example, to build a website to promote your business online, you may need to pay a web designer to manage the technical aspects of the build or you may have to pay rent on a warehouse to store the stock that you intend to sell. 

In these examples, the fee that you pay to the designer and the cost of the rent would be an expense. Similarly, if you were to host a business meeting for new clients, you could class the cost of the meeting room hire or transport costs to get there as an expense because they are all costs incurred as part of running your business. 

You should be aware though, that not all expenses incurred as part of running your business are allowed to be deducted from your income. It is therefore important to check HMRC’s guidance on what is and isn’t classed as an allowable expense before claiming. 

Are You Self Employed?

Expenses are handled differently depending on whether you’re employed or self employed. If you are self employed, you are responsible for tracking and keeping records of any business expenses that you incur so it’s important to understand if you fall into the category of being self employed. 

For most people, it’s fairly clear if they are employed or self employed but there can be some grey areas, and it is very common to be both employed and self employed at the same time which can cause confusion. 

You are considered to be self employed if you run your own business and are responsible for its success or failure. Several simple tests can be used to see if you meet the criteria for self employed status which are outlined below. 

You are likely to be self employed if;

• You can decide how to work, where to work and when you will work.
  Having full autonomy over when and where you complete work on behalf of clients is one of the biggest distinctions between self employment and being employed. In the case of being employed, an employer sets the expectation of when, where and how you complete your work.
  When you are self employed, as long as you meet the deadlines or tasks agreed in the contract between you and your client, you are free to work on your terms and are an independent provider of services and not a permanent part of the client’s business. This means you can work wherever you wish at a time that is convenient to you.

• If you invoice others for your time or services offered. If you have to send an invoice to your clients when you have completed a task or project, or if you invoice customers that wish to use your services on a retained basis, then you are self employed. 

• You can have several clients or customers at the same time.
  When you are self employed, you are in control of who you work with and how many clients you have. This means that you can work for multiple clients or customers at the same time as long as the work you have agreed to complete for them can be done without interfering with the delivery of another client’s project or workload. Being self employed allows you to work when your workload dictates, which is great if you like flexibility but can quickly spill over into evenings and weekends too.

• You provide your own equipment. If you have to provide the main equipment or tools that you need to complete your work, then you’re likely to be self employed. This could be a laptop or computer for home-based service workers such as writers and designers, or something more substantial such as a pick-up truck or scaffolding for manual workers.

• You are responsible for the success or failure of your business.
  When you are self employed, it is your responsibility to ensure that your customers are happy with the work that you complete on their behalf. If you submit unsatisfactory work or services that are not up to standard, then you cannot charge the customer again for the time spent re-doing the original work if this is requested by the client. This must be at your own cost.
• Somebody else can do the work that you have agreed to. When you are self employed and agree to complete work for a customer or client, you can send somebody else to complete it instead of you, or you can supervise others in delivering the work on your behalf – as long as they have the required skillset to deliver the work agreed. For example if you are a builder, you can send another builder in your place or if you are a writer, you could ask another writer to produce the work required.

If you are still in any doubt as to whether you are self employed or not, then you can view this factsheet from HMRC to help you to check your employment status. 

What Counts As An Expense?

When it comes to expenses, it’s important to know what can and can’t be claimed as a legitimate business running cost. Not every outgoing incurred can be claimed as an expense as HMRC are very clear about what they class as an allowable expense.

You can claim the following allowable expenses; 

• Costs associated with setting up or running your office or business such as; stationery, phone bills or printer ink, computer software, rents & utility bills, business rates, property insurance, broadband. View the full list of allowable office costs here. 
• Costs associated with travel that you do for work such as; fuel, parking, train tickets, vehicle insurance, breakdown cover, hotel stays, meals on overnight trips. View the full list of allowable travel costs here. You cannot claim for non- business-related travelling or travel costs, parking fines or driving penalties, or travel between home and work. 
• Costs associated with clothing expenses such as; uniforms, protective clothing such as specialist working boots or overalls, costumes for actors. View the full list of allowable clothing expenses here. You cannot claim for the cost of regular clothing, even if you wear them to work. 
• Costs associated with staffing such as; wages, subcontractor costs, bonuses, pension contributions, employees national insurance payments, and training courses. View the full list of allowable staffing expenses here.
• Costs associated with reselling such as; the cost of stock that you buy in to sell on to others, raw materials needed to do your jobs such as timber for a carpenter, or direct costs from producing goods. View the full list of allowable reselling expenses here. 
• Costs associated with legal and financial transactions such as insurance, bank charges, hiring legal representation, surveyors or accountants for your business. You cannot claim for fines that you have been charged for breaking the law though. View the full list of allowable legal and financial expenses here. 
• Costs associated with advertising, marketing and subscriptions such as; website development costs, providing free samples, placing digital or print advertisements, conducting mail drops or subscriptions for trade magazines or memberships to professional organisations. You cannot claim for entertaining clients, suppliers or customers, gym memberships or payments to political parties. View the full list of allowable marketing and subscription expenses here. 

If you are newly self employed and don’t know if your business will be viable, HMRC offers you the chance to earn £1000 without paying tax. This is referred to as a tax-free trading allowance and means that you don’t have to submit a tax return if earning under this amount but you can’t claim expenses if using your £1000 tax-free trading allowance.

If you’re not sure whether a business cost is an allowable expense you can always contact the Self Assessment helpline.

Simplified Expenses 

If the idea of working out the proportion of energy specifically used for business purposes when working from home baffles your brain, then you may find it useful to use HMRC’s simplified expenses calculator.

Using the calculator means that you don’t have to record every single bill within certain expense categories to claim them as an expense. Instead, you would use a simplified, set rate for expenses such as mileage, working from home, business running costs for some vehicles, and living in your business premises. 

You can use the simplified expenses checker to compare what you can claim using simplified expenses with what you can claim by working out the actual costs. This will help you work out if simplified expenses will save you money when calculating the tax owed to HMRC. 

If you’re unsure whether to use actual costs or simplified expenses, you should compare one with the other. If you don’t have a full year’s worth of data you can base your calculations on a typical month and multiply it by 12 to get an estimate of your annual expenses if using actual costs over simplified expenses. 

Expenses And Self Employment 

Whether you are solely self employed, or self employed at the same time as being employed, then you will be responsible for paying your tax and national insurance contributions via an annual self assessment tax return for any work that you carry out on a self employed basis.

To know how much tax that you owe to HMRC, you will need to know your total income and your total expenditure. The total expenditure is the combined total of all of your allowable expenses and simplified expenses for the year. 

By deducting your expenses from your income, you can then determine your profits and it’s your profits that will then be used to calculate how much tax that you will need to pay to HMRC.

For example, if your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 and this is known as your taxable profit.

• If you are employed, the tax that you owe will be collected through the pay as you earn (PAYE) system which is managed by your employer. 
• If you are self employed then you will pay tax on your self employment profits via the self-assessment system. 
• If you are both employed and self employed, you will be required to enter figures showing how much you have earned from being employed on your self-assessment tax return, as well as your self employment figures. This information is easily found on your P60 which your employer must supply at the end of each tax year. 

Related Questions

How Do You Claim Expenses? 

In order to submit your annual self-assessment, you must keep track of the expenses that you incur as a self employed person. You are required to keep these records for at least 5 years after the 31st January of any given tax year in case HMRC needs to check your records to ensure you’re paying the right amount of tax. 

Whilst you do not need to submit every individual cost that you incur to HMRC, you do need to keep accurate records of each cost, including receipts, so that you can submit the combined sum of your expenses to HMRC and show proof if you are ever required to do so. 

As HMRC do not dictate the way that you keep track of your expenses, the size of your business and scale of operations will determine how you manage this. Most people will use a dedicated accounts software package that keeps track of all payments out of your business as well as facilitates invoices. If your business is very small or you have very few expenses, then you may be able to keep on top of your accounting records via an excel spreadsheet. 

 Can I Claim Expenses From A Previous Tax Year? 

You can claim expenses from a previous tax year but this must be done within 4 years of the end of the tax year that you spent the money. Upon submission via your self-assessment, HMRC will either adjust your tax code or give you a refund. 

The post What You Can Claim As Expenses If You’re Self Employed appeared first on Real Business.

Is it a legal requirement to have a business bank account – Desptite many believing it is, it is not. There is no actual legal requirements on a specific bank account, though your accountant and financial advisors will usually say it is helpful. Whether you are operating as a sole trader or a limited company, having all of your overall financial transactions in one place is extremely sensible. Preparing a business annual set of accounts is a legal requirement for Companies House and a business bank account helps that process.

In this article, we will explain the pros and cons of having a business bank account and explore the legal requirements when it comes to how you manage your business’ finances.

Can you use your personal account for your business?

Whether or not you can legally use your personal bank account for your business will depend on the structure of your business. Whilst there is no legal requirement for a business operating as a sole trader to have a separate business account, it is highly recommended to do so.

You’ll also need to check whether using a personal account for your business complies with your bank’s terms and conditions. If your bank discovers that you’ve been using your personal account for your business without authorisation, your account could be shut down.

Read on to discover everything you need to know about business bank accounts.

What is a business bank account?

Just like a personal current account, a business bank account allows you to pay in and withdraw money as and when you require. However, a business bank account is used solely for your business transactions. As described, “Is it a legal requirement to have a business bank account?” – No but it is usually very sensible and in many cases, accountants will almost insist upon it to support their role.

There are business accounts available that allow additional functionality such as facilitating card payments, creating your invoices and running your payroll. You may also be able to have a business overdraft and credit card from your business bank account.

Although many business bank accounts advertise themselves as being free, this is rarely the case. Most business accounts charge a monthly fee, although this may be waived for the first few months as a sign-up incentive.

What does the law say about business bank accounts?

First of all, let’s look at what the law says about business bank accounts. Is it a legal requirement to have a business bank account for your business in the UK?

Does a sole trader need a business bank account?

If you operate as a sole trader in the UK, there’s no legal requirement to have a separate business bank account. HMRC state that you should record your business transactions separately to your personal transactions, but this doesn’t mean that you need separate bank accounts to operate legally.

However, having a separate bank account for your business will make filing your tax return far quicker and easier, as you’ll be able to clearly see your business transactions. Although this doesn’t need to be a specific business account, you’ll need to check the terms and conditions attached to personal bank accounts as some may state that they cannot be used by businesses.

Does a freelancer need a business bank account?

Freelancers are typically registered as a sole trader with HMRC. As long as you are trading as a sole trader, there is no legal requirement to keep a separate bank account, although it can help you to keep your business and personal transactions separate and make it easier to complete your tax return.

If you decide to register as a limited company, you will be legally required to open a business bank account as your business will then be regarded as a separate legal entity. It’s worth considering this when deciding whether to operate as a sole trader or a limited company.

Does a limited company need a business bank account?

A limited company is legally required to have a separate business bank account. This is because a limited company is a separate legal entity with its own legal obligations and finances. Profits are retained by the company and may be paid to shareholders as dividends.

If you own a limited company that has been registered at Companies House, your business will need its own bank account. This is because your business is not linked to your personal finances so needs to remain completely separate.

How do business bank accounts work?

Business bank accounts are very similar to personal bank accounts. However, there are some fees that you need to be aware of.

Firstly, most business bank accounts charge a monthly account fee, simply for having the account open. Monthly fees typically range from £5 – £15. You’ll need to think about whether this fee is sustainable long-term for your business before signing up.

You may also be charged transaction fees for card transactions, paying in cash over the counter or cashing in cheques, so it’s important to read the terms and conditions carefully before choosing a business bank account.

Many banks will offer free business accounts for the first few months, meaning that there are no fees to pay. However, this usually only lasts for 6-12 months so make sure you understand the future fees before making the commitment.

Pros and cons of business bank accounts

Although business and personal current accounts have many similarities, there are a few differences that translate into either pros or cons.

When you’re trying to decide whether to open a business bank account, it’s important to weigh up these advantages and disadvantages. This will give you the information that you need to be sure that you’re making an informed decision that is right for your business.

Benefits of having a business bank account

The benefits of opening a separate business account for your business finances include:

Separation: A business bank account enables you to keep your business transactions completely separate to your personal finances. This can make it easier to see how much money you have both personally and in your business, as well as saving you valuable time when it comes to filing your tax return.

Build a credit rating: Opening a bank account in your company name can help to build the credit rating of your business. This can come in useful later down the line when it comes to applying for a business loan or taking out a credit card.

Professional appearance: A business account can give you a more professional appearance, with your business name appearing on cheques and your debit card. This can help to give customers more trust in your business.

Disadvantages of having a business bank account

The disadvantages of opening a separate business account include:

Fees: Most business accounts will incur a monthly fee. This fee usually sits between £5 and £5 per month but fees vary between banks. You may also be charged a transaction fee, depending on the account. Many banks attract businesses with the promise of 6-12 months fee-free, but the fees apply after this time, so be sure to check the terms and conditions before opening an account.

Separation: Although separation from your personal finances is an advantage, it can also be a disadvantage. Having a separate business account means that you’ve got another bank account to manage, meaning that you’ve got twice the number of statements, passwords and debit cards.

How to choose the right business bank account

Most high-street banks offer business bank accounts, along with many online-only banks, but how do you know which to choose The most important thing is to fully research the options available so that you can choose the right option for your business.

It can be tempting to look for the cheapest business bank account, or the business bank account with the lowest fees, but there are other factors that you will also need to take into consideration.

For example, think about how you’ll access the bank. Do you plan to regularly deposit cash in person” If so, you’ll want to choose a bank that has a branch located near to your home or business address.

You might also want to think about whether the bank has an app that can be accessed from your mobile phone. Some apps will allow you to deposit cheques on the go, whilst others may allow you to take card payments from customers.

It’s also important to read customer reviews to make sure the bank you choose is known for its great customer service. Customers are usually quick to leave a review if their experience isn’t up to scratch, so put this to good use by checking Google, Trustpilot and Facebook for reviews.

Weighing up all of these factors can help you to choose the business bank account that is best suited to your business’ needs.

What do you need to open a business bank account?

You might be wondering what you’ll need to be able to open a business bank account. If you are a sole trader, you’ll need photo ID such as a driving licence or a passport, as well as proof of your current address. This could be a utility bill or a bank statement.

If you want to open a business bank account as a limited company, there are a few more things that you’ll need. As a limited company, you’ll need to provide details of your company’s registration at Companies House, along with your VAT registration details.

It’s best to check with the bank you’re opening an account with so that you can make sure you’ve got the right documents ready to open your business account.

Should you open a business bank account?

For limited companies, you are required to open a business bank account to comply with the legal duties of running a limited company. However, for sole traders, the choice of whether to open a business account is completely personal.

Keeping your business and personal finances completely separate can help you to keep track of how much money is in your business and save you valuable time when it comes to filing your tax return. However, business bank accounts typically incur a monthly fee, increasing the costs of running your business.

Related questions

Can I use my personal bank account for my small business?

If you’re operating as a sole trader, you don’t legally need to have a separate business bank account. However, having a separate account can help to keep your business and personal finances separate, as well as making it easier to file your tax return at the end of the year. You’ll also need to check that you aren’t breaking the terms and conditions of your bank account by using it for your business, or you could run the risk of your account being shut down.

How do small business owners pay themselves?

If you’re a sole trader, the profit that your business earns is legally your own as you are the same legal entity. Sole traders typically pay themselves through an owner’s draw. This is simply transferring money from your business bank account to your personal bank account. You can choose how much to pay yourself – it’s one of the perks of being self-employed. However, you’ll also need to make sure that your business is financially stable as you’ll be personally responsible for any debts.

Should I leave money in my business bank account?

It’s always a good idea to have a small amount of money in your business account to cover future expenses. If you’re a sole trader, the money in your business account is legally your own so it’s worth considering whether to transfer any excess money into a savings account or whether to invest it. Remember that as a sole trader, you will be personally liable for any debts that your business occurs, so you’ll need to make sure that you leave enough money in your business account for any business expenses.

Summary – Is it a legal requirement to open a business bank account?

Whilst generally there is no legal requirement to open a business bank account, you often should do it anyway. Sole traders are under no legal obligation to open a business bank account, whereas limited companies must have a separate bank account.

Having a separate business bank account can help you to manage your personal and business finances more easily, seeing exactly how much money is going in and out of your business each month. It can also help to speed up the process of completing your tax return – something that every business owner wants!

If you do decide to open a business bank account, make sure that you weigh up your options and read the terms and conditions carefully. There’s nothing worse than jumping into a decision that you later regret.

The post Is it a legal requirement to have a business bank account? appeared first on Real Business.

SME cashflow is its lifeblood and poor management can be a killer. Despite the inventiveness of some businesses in the wake of this pandemic, COVID has largely presented a cashflow nightmare for operations of all sizes. For many who were already struggling to balance the books pre-pandemic, the enforced lockdown in March signalled a death knell for many enterprises affecting mostly those in the retail, travel, leisure and tourism sectors.

Business coach and author Sheryl Miller, offers seven suggestions for how to tackle the cashflow nightmare as businesses head into another difficult year.

Even with the rollout of a vaccination programme, 2021 doesn’t look much better than 2020, and resumption to ?normality” is to an uncertain timeline.

It’s a grim outlook. Institutional, well-loved brands have floundered. The number of companies going into liquidation or administration in May 2020 compared to the same period last year rose 322 per cent.

ONS figures revealed the number of people claiming unemployment benefits reached almost 2.1m in April. And the Treasury recently reported 8.4m workers have been furloughed whilst other glum predictions point to a very possible reality that we will likely experience the worst recession since 1706.

“The impact on business means that change be that on operations or on entire business models is inevitable.

Navigating the choppy economic waters

How can businesses, particularly SMEs that provide around 60% of all private sector jobs, navigate the choppy economic waters of a new reality shaped by COVID?

Undoubtedly, the crisis has spurred a new kind of creativity and risk taking in commerce that might, perhaps, have never have ordinarily come about if the pandemic had never presented itself.

Yet, arguably, a pandemic is not the ideal time to road test crazy ideas if the main strategy is to keep cash-flow steady during a period of ongoing uncertainty; just the employment of critical elementary processes that any business can take in order to weather the bad times.

These fundamental measures include:

1. Cashflow forecasting

If you’re not already doing so, start a daily, weekly and monthly cash flow forecast so you understand your requirements fully. This can make for sobering read, but by being fully transparent and realistic about your outlook, you can then set aspirational yet achievable financial goals in the short, medium and long terms based on fact – not optimism or hope.

2. Slash your costs

Review every expense line from largest to smallest and reduce, negotiate and eliminate costs wherever possible. Renting office spaces, for example, a huge overhead before coronavirus might well be reconsidered. Indeed, some businesses who have actually seen that remote working has benefitted their bottom line, improved work culture and not detracted from performance may deem the physical office space as an unnecessary expense if the “future of work” is largely from home.

3. Renegotiate with suppliers and lenders

Review all liabilities (payments) and contract suppliers to renegotiate payment terms that are mutually agreeable to both parties. This is essential for ensuring you do not fall into short term cashflow problems and allows for effective financial planning and forecasting.

4. Search far and wide for funding

Extend your search from funding beyond just loans and grants that have been made available to COVID-affected business. Investigate regional or industry-specific business funding too, as well as crowdfunding and angel investment as additional options.

5. Review all debts (money owed to you)

Late payments from clients cause all sorts of headaches for SMEs. Pre-pandemic, this was an issue that saw 78% of businesses being forced to wait over a month beyond agreed payment terms before money owed was settled.

Get adept at chasing overdue debts but, at the same time, don’t lose your sense of humanity in the process due to COVID there are myriad reasons as to why late payments occur.

Liaise with your bank or financier to quickly solve cashflow issues relating to unpaid debt and, if late payments affect your ability to pay suppliers, be as upfront and transparent as possible so that you can renegotiate terms.

Going forward, strike good relationships with clients that have a good credit rating for paying on time.

6. Review all assets

Look at stock, equipment and any other assets you think you can sell in order to raise capital in the short term whilst mapping out a plan to recoup those assets in the near future once you’ve become more financially fluid.

7. New cash generating revenue opportunities

Read, research and reflect on the strengths, weaknesses, opportunities and threats of your business and the sector in which you operate particularly in a post-COVID world. Change is inevitable, inescapable even. Use this as a time to determine a plan where you can tweak and diversify your offering, as well as add value for customers in a climate where people will naturally be cautious of spending.

?Ultimately, during this ongoing period of uncertainty, don’t lose sight of the fact that more money needs to be flowing into the business than flowing out in order to keep the lights on.

Measure and evaluate SME cashflow at all times so that you understand your current financial position and can make informed decisions and Affordable risks” – not just to keep the business afloat, but to grow it even within economically hostile environments.

About Sheryl Miller

Sheryl Miller is a business coach and author of Smashing Stereotypes: How To Get Ahead When You?re The Only _____ In The Room.

Sheryl is a business advisor, accountant and also a business mentor to C-suite. She has worked with blue chip companies to help them manage issues regarding work culture, as well as diversity & inclusion.

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Chris Mills, Regional Managing Director, Transportation for Western Europe at global logistics platform provider, C.H Robinson says that supply chains are about to become more innovative…

Whilst unprecedented, the coronavirus has caught supply chains napping around the world from a too heavy reliance on certain territories for the source of goods, to too little visibility across multi-tiered supply networks and insufficient data intelligence to inform high speed decision making.

At the same time the emergency response to COVID-19 has further strengthened the case for artificial intelligence. We ve heard how researchers from Fudan University in Shanghai has used COVID-19 as a case study to test and prove the capability of AI in making real time predictions.

The World Health Organisation has said that AI and big data were a key part of China’s response to the virus. Leaders representing major brands in computing, social media and smart phones met officials at Downing Street to discuss their role in the Coronavirus in terms of modelling and tracking data.

Whilst the NHS turned to artificial intelligence to help predict demand for intensive care beds and ventilators allowing hospitals to plan ahead by being notified in advance when capacity would be reached, allowing extra resources to be brought in.

By revealing risks and weaknesses in existing supply chains and proving the value of AI through managing the emergency needs of the pandemic, the coronavirus will likely act as the trigger to a major step change in the way companies go about logistics one that we predict will lead to a new era of intuitive supply chains.

What does an intuitive supply chain look like

It is ultra-intelligent due to its innate ability to draw upon and analyse major quantities of data across business functions, suppliers and competitors thanks to artificial intelligence. It intuitively reads all types of situations, from predicting the unpredictable to instantly responding to fluctuations in demand through understanding changing consumer behaviours and buying patterns. The intuitive supply chain can even respond to weather and political conditions before they occur.

It’s super intelligent powers will also support end-to-end supply chain visibility, the lack of which has caused many challenges during the coronavirus outbreak. It will do this by delivering insights at scale providing a deep understanding of multi-tiered supplier networks, the goods that pass through them and stock levels held at key points at warehouses, point of production or at the retail end. This enhanced visibility will mean that supply chain leaders can intuitively make contingency plans in response to unforeseen events whether they be internal (a fault on a production line) or external (delayed shipments).

The intuitive supply chain also takes advantage of combining artificial intelligence with the internet of things to extend the possibilities of best practice logistics management, such as monitoring the physical impact of goods in transit covering such aspects as shock, tilt, humidity, light, temperature and pressure which will alert them to potential spoilage, damages and goods tampering.

This takes customer experience to a whole new level and drastically reduces costs associated with damaged and spoilt goods.
The supply chain of the future will be all about predict and prevent rather than its predecessor which focussed on track and trace.

In the warehouse the introduction of AI will work out how to perform tasks and get around the facility in the least time. It will plan paths for the movement of goods to maximise throughput. SKU lots will also be optimally positioned. Goods that need to be picked up at the same time will automatically be identified. The combined data that can be assimilated across the supply chain at great speed will ensure that overstocking and understocking will be avoided.

The role of AI

AI is at the heart of our Navisphere system working with machine learning algorithms to harness the power of more than two petabytes of data in informing strategic decision making, supporting global visibility across multi-modal transportation networks to deal with any eventuality and providing the ability to plug inefficiency gaps to enhance freight flows and reduce costs. It fully integrates with customers” own systems and through various functions and application programming interface (API) technology it can pull in data from carriers, customers and other external sources, such as road data, weather forecasts and traffic reports.

Fulfilment, procurement and production operations can access the information live on Navisphere and adapt their own processes at an early stage. For example, production departments benefit from receiving precise information on when the ordered supplies arrive at the company. Internal logistics and production processes can in turn be coordinated and optimized accordingly.

Recent introductions include a benchmark tool that enables customers to alter lead times and volumes and thereby reduce costs and improve dwell times/on time performance. Currently development is focused on providing insights which can improve the carbon footprints of supply chains.

Through the AI-driven intuition of Navisphere we ve reduced a 56-day order cycle to 20 days or less. A customer has been able to reduce air freight shipping costs by 85%, while two customers from the manufacturing industry have saved on shipping costs 50% and 20%, respectively. At the same time, one of our biggest clients, a leader in the FMCG world, has reduced their transportation budget and cut the total weight and volume shipped by 65% due to added visibility, efficiency, and up-front planning.

It was revealing when in late February and early March during the coronavirus the Institute of Supply Management carried out one of its monthly economic surveys which found that nearly three quarters of companies it contacted reported some kind of supply chain disruption, with 44% admitting they didn?t have a plan to deal with it.

Prior to the coronavirus, Gartner predicted at least 50% of global companies would use AI related transformational technologies in supply chains operations by 2023. That could be significantly more now in the wake of coronavirus as companies look to implement it at pace and others are encouraged to start seriously investing in it. It is no longer a luxury but a necessity. – and with-it becoming part of the new normal logistics, an era of intuitive supply chains will be born.

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Andrew Duncan, Partner and UK Head at?Infosys Consulting shares his insight on what businesses can do to achieve both stability and agility during this time…

Prior to the pandemic, most businesses were optimising for cost efficiency. COVID-19 revealed that this model made our value chains too lean, our budget cycles too rigid, and our departments too siloed to weather the storm of unprecedented shocks or disruption. We ve had to work faster and better than ever before to match the dramatic shifts in customer expectations, and these new standards for agility will overturn old paradigms.

But speed shouldn?t come at the cost of long-term stability. You need to embed both within your operating model to gain a competitive advantage in the new economic climate.

Stability vs. agility

COVID-19 has broken apart business systems, requiring us to build small, nimble teams that make important decisions quickly and effectively. The past few weeks have seen employees from all levels jumping on video conferences to solve problems with a higher level of autonomy.

The lessons from this shift cannot be unlearned, and it has become clear that a flatter organisation with dynamic teams is often the most effective and scalable way to build resiliency into business operations.

Most organisations already had elements of agility prior to the pandemic, and it is the companies that embed this concept of decentralisation within their core that will succeed in a world where fast beats slow.

However, it is equally important that the organisation doesn’t lose sight of the long-term outlook when establishing a more agile operating model. Even the most agile companies tend to keep the backbone of their organisational structure constant, laying out clear governance and processes from the very beginning.

Strong leadership remains at the heart of a decentralised and agile organisation, and regardless of how disruptive the external environment is, employees need clear strategic guidance on expected outcomes and priorities.

Tactical cost management for long-term gains

We can also see this balancing act between speed and long-term stability when considering cost management. In the immediate aftermath of COVID-19, we will see tactical actions to optimise cash flows and working capital, including temporary freezes on new hires, complex and difficult renegotiation of new and existing contracts, and adjusting of inventory and working capital levels. In this case, speed matters.

Companies that survived the last recession were shown to have cut costs earlier, faster and deeper than their competitors. However, it is the companies that not only focus on cost management, but also use the recession for more strategic action, that will position themselves for the long-term.

While it may well be necessary to make tactical cuts quickly, businesses must consider how they can explore different cost levers to build resiliency for the future.

Those that are strong enough for transformational moves like reorganisations and portfolio optimisation have a unique opportunity to fundamentally rethink their revenue profile and get ahead of the competition.

The power of leadership

Leaders with the appropriate strategic vision may already be monitoring for signals of an economic rebound, and could potentially make an immediate shift to M&A to acquire assets that others are forced to discard. Now is also the time to consider rapidly scaling out digitisation efforts and investments to build a more resilient infrastructure.

Given the unknown environment ahead, it is clear that a robust business is formed through a careful balancing act. Post COVID-19, leaders need to not just define where they sit on the spectrum between stability and dynamic agility, but consider how they embrace both, to ultimately gain a competitive advantage and build an operating model that doesn’t fight between effectiveness and efficiency.

This pandemic has highlighted that resiliency isn’t a destination, it is a journey a journey that depends on making a series of trade-offs as we navigate the evolving and volatile climate over the coming years.

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Head of Consulting at Leyton UK, Radeep Mathew, shares his views on the cash flow issues that SMEs are facing…

For many SMEs, the last few months have been a huge challenge in terms of cashflow. Delays to emergency loan payments and huge uncertainty about when life might return to some semblance of normality have created huge difficulties for SMEs, and many have relied on government support to get through this period.

However, many SMEs are now seeing the light at the end of the tunnel as the retail sector tentatively prepares to return. However, businesses must not become complacent. As government support schemes are scaled back over the coming months, the uncomfortable truth is that there will be more tough times ahead.

Faced with this reality, it is crucial that businesses monitor the potential cash flow challenges over the next six months to a year, and consider the options available to navigate these possible difficulties. Many businesses have been forced to continue paying certain fixed costs over recent months, dwindling away important working capital. Cash may also be tied up in unpaid debt something to be aware of when facing the cashflow challenges over the coming months.

1. Staffing costs

Recent figures show that over 8 million UK workers have been supported by the Government’s furlough scheme, which has helped to reduce the burden of staffing costs through the crisis. However, this scheme will not continue indefinitely. It is currently set to finish at the end of October, and funding for the scheme will be gradually reduced from July. Businesses that have taken advantage of the scheme in recent months should think carefully about how to navigate any sudden changes to their staffing costs and the peaks and troughs that this could cause.

2. Corporation tax

For most UK companies, corporation tax payments are due around the start of October or in the new year, depending on their payment schedule. However, having the cash to cover these payments may be particularly challenging this year. However, there are solutions to this. HMRC’s ?time to pay” arrangements are likely to remain in place. Businesses that are concerned about being able to pay their tax bill can speak to HMRC to discuss how they may be able to spread their corporation tax payments over a period of up to twelve months, preserving vital short-term cashflow.

3. VAT

One of the recent measures put in place to help businesses with cashflow is the deferral of various VAT payments. Businesses can apply online for a deferral, pushing the deadline back to 31 March 2021. While this may seem like a long way away, planning will be crucial to meeting this new deadline, especially given the other strains on cashflow.

For those businesses that have not deferred their VAT payments, having the short-term cash on hand will be crucial. There are various options to achieve this one that shouldn?t be overlooked is R&D tax credits. This is a highly underused form of tax relief that can put thousands of pounds in the hands of businesses in a matter of weeks.

4. The festive period

The festive period is probably one of the last things on the mind of small business owners at the moment, many of whom are facing more immediate challenges.

However, it is something that must be taken into account when trying to consider longer-term plans. The festive period can have some impact on cashflow, and companies may delay payments to suppliers during this time. If your business will depend on cashflow during this period, it is important to consider how you can best prepare for this, and what contingency plans need to be put in place if payments are delayed.

Moving forward…

With these cashflow challenges ahead for SMEs, the next few months won’t be plain sailing. However, by planning effectively and taking the right steps to support cashflow at critical moments, well-prepared businesses will be able to weather the storm and will be best placed to benefit as the economy eases back into life.

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Marcus Young is partner and Layla D”Monte is an associate in King & Spalding‘s London office, they have co-authored the below piece on what SMEs should expect from the Government’s Future Fund scheme…

Many SMEs will be looking at making an application to the UK government’s new Future Fund; a £250 million investment pot intended to support the country’s innovative new business ventures impacted by the COVID-19 pandemic.

The fund will match up to 100% of the amount provided by an investor/s, up to a maximum of £5 million and offer packages of between £125,000 to £5 million. It is delivered by the British Business Bank (BBB) and opened for applications on 20 May.
If it sounds like an attractive proposition for boosting SMEs then that’s because it is. The fund has a great many benefits but there are a number of key factors and potential pitfalls that SMEs should consider before filing any applications.

Try before you apply

First and foremost, the clock is ticking. The government has put in place a provisional deadline of 30 September for applications and the fund is operating on a “first come, first serve basis. So once its gone, its gone (unless the Government extend the line of credit).
The scheme is an investor led scheme, and it is therefore the investor, or lead investor of a group of investors, who will need to apply. The key to accessing this fund is that it must be a qualifying individual investor in relation to an eligible company, not the company itself.

As such, companies need to find an investor willing to lead the process. Attracting funding of between £125,000 and £5 million (the amount required to be ?matched by the fund) is not going to be a straightforward task for many SMEs.
What is complicating this process is the unknowns. How much risk are the investors being asked and willing to take when making an application?

Willing lead investors may well look for certain guarantees from an SME itself to help mitigate the risk or even look at using the application as leverage for other aspects of the enterprise in future. Should an SME not give due care and attention to any agreements or become too focused on accessing the fund there is a risk they may enter into an agreement with an investor that has wider detrimental impact on the business. The initial short-term cash boost could be offset by losing control over aspects of your business in the long-term.

Gaining interest

It is also important to stress that these are not grants but loans. They will have to be paid back and carry a minimum of 8% per annum (non-compounding) interest rate; which is a huge margin on the current depleted Bank of England base rate. At this point, the interest will either be repaid or convert in equity. The loan will mature after 36 months. On top of this, the interest will be higher if the company and the investor(s) agree between themselves.

Unlike a typical bank loan, the interest is not payable on a monthly basis and instead will accrue until the loan converts. Rather similar to interest-only mortgage , that will require maintaining and managing a three-year ?back-end repayment schedule, especially as the loan cannot be repaid early by the company other than with the agreement of all of the investors. This too is a caveat that could lead to business disputes, with the loan being used as potential leverage.

The loans will convert into shares in the company in certain circumstances, including an exit or a new funding round. Investors and the Future Fund both invest using a convertible loan agreement, which is predefined and cannot be negotiated.

Tax (dis)advantaged

There has already been a great deal of criticism on how the Future Fund is potentially incompatible with EIS and SEIS (tax schemes supporting individuals investing in startups, i.e. angel investors). It seems the government, rather than reviewing investment decks is relying on prospective applications having been pre-assessed by VC funds. It is important to stress that tax advice should be sought before accepting funding under the Future Fund.

Based on our analysis:

Past investments may not be affected but there are no guarantees. The government has confirmed that previous EIS/SEIS investments will not be affected where the convertible loan converts into shares. Where the convertible loan note redeems, the British Business Bank states that government intends” to make changes to the rules to clarify that this is compatible with such previous investments.

Current Future Fund loan note is not compatible with EIS/SEIS. This means that the scheme will be highly unattractive to angle investors.

Private investment in the future if you persuaded an angel investor to invest without SEIS/EIS for this investment to help your company in this time of need, the SEIS/EIS rules would preclude them from ever getting SEIS/EIS again in your company, so that investor is lost for future rounds.

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If we were en route to a recession before the coronavirus?outbreak, following the decimation the virus has caused to communities and their businesses, we are certainly there now.

As the crisis goes on, businesses are finding themselves wading through an unprecedented time of change, with many having to pivot themselves, if not entirely rip apart their business model just to stay solvent.

SMEs, in particular, are most vulnerable during times of volatility. During the last global financial crisis in 2008, it was smaller businesses that were hit the hardest. At the apex of the downturn, some 300 small firms were closing each week in the UK.

According to Darren Shirlaw, economic trends expert and co-founder of BoB (Business of Brand), the world is marching into another recession, but it might not be as much of a surprise attack as we have been led to believe.

Last week, Shirlaw spoke on an exclusive Prosper” webinar on the impending recession and what SME owners can do to thrive, not survive, the biggest economic event to hit the world since 1987, never mind 2008.

Watch the whole webinar below, or read on for the highlights.

Prosper” is a unique business that sits in the heart of the UK’s growing business community, featuring a rewards programme and private business club for SMEs. Prosper” launched a webinar series in May to cover key topics that are top-of-mind for 3 in 4 SMEs surveyed today; building recession-proof brands, the value and benefit of building communities, and the hidden opportunities for product innovation.

Hosted by managing director and founder Michael Wilson and commercial director Gerald Bradley, the Prosper” webinar series will run live every Thursday at 12 noon. Click here to register for the next one on building communities and connecting with customers.

Wake up. We’re in a recession

You can predict any kind of recession but only in a macroeconomic sense, says Shirlaw. He does this by looking for trend lines in?markets?and monitoring history, what’s morethese trend lines date back some 3000 years;?

“We don’t worry about why these crashes happen, we are instead interested?in the trend line so we can?predict?what do to and go forward,” he says.

“Going back in history, we can see trend lines repeat themselves over and over again. But I didn?t predict the (current) pandemic, all I did was look at the trend line.”

The trend line explained

Shirlaw uses the Dow Jones Index (chart below) to predict when the next recession may occur. “What you can see here is a fourteen-year flat period followed by an eighteen-year up period. This happens over and over again,” he explains. ?

“If you look back to the 60s, you can see through 1961-1981 is flat,” he says. “Also,1999-2013 saw 14 years of flatness too. In addition, there are two large dips (or recessions), in 1974-75 and in 2008-2009. They are called a W-shaped recession, meaning there is a double-dip.”

“Between 1981-1999, we again saw 18 years of growth. About seven years into these growth phases, an L-shaped recession occurs. Then we have 18 months of flatlining, and the cycle repeats itself.”?

V, W or L-shaped recession

For a V-shaped recession, the economy is sliding down at a 45-degree angle, and then there is a ?bounce back at the bottom,” Shirlaw explains. The key here is that we are sliding, which means an abrupt crash, he adds.

“In March of this year, we did not slide into this crash. A classic example of a V-shaped recession happened in America in 1953 when the booming post-World War Two economy was upended by high-interest rates.”

“A W-shaped recovery is when an economy passes through a recession into recovery and then immediately turns down into another recession,” says Shirlaw. “Also known as a double-dip, a prime example of when this happened is during the 2008 recession.”

Three days into March 2020 cost the markets 30%, says Shirlaw. “On the 16th of March, the market fell by 12.9%. Similarly, in 1929, Wall Street crashed by 12.8%. What’s important to remember here is that they fell straight down, and not at a slant.”

“The fact that it falls straight down makes it an L-shaped recession. This occurred in 1987 and that’s what is happening right now.”

An 18-month growth period will follow after this, says Shirlaw. “So by September 2021, we will hopefully be out of this downturn and the period spanning September 2021-2031, will be a time of great growth.”?

How can you prepare

To prepare for the upcoming recession and doom-proof your business, you’ll need to pivot quickly, says Shirlaw. This is because L-shaped recessions are different and most business owners have little to no experience of preparing for them, he claims.

“Unless you ran a business in 1987, you have not run a business during an L-shaped recession,” says Shirlaw. For those that haven’t, here are his three steps to prepare and rebuild your business over the next 18 months;

1. SHOCK PHASE: March to June 2020

This is known as the Shock phase, similarly to grief. Most businesses don’t typically respond unless they have too.

2. RECOVERY PHASE: June to December 2020

This is known as the Recovery phase, this is when things like blame and trauma appear in the media. Business owners should avoid engaging in this to protect staff morale. People start to get angry and staff morale will likely to be low, as they might find themselves working longer hours for less pay.

3. REBUILD PHASE: December 2020 to September 2021

This is known as the Rebuild phase, during these 9 months, people start to think about what they can do to rebuild their business. Here you can expect a bit more stimulus start to come back into the markets as the prospect of emerging from the recession appears. However, during this time, staff are likely to start looking for a change in jobs. So managing staff is important. Don?t burn them out during this phase. Instead, work to create an environment they want to remain in.

For more tips on building communities across a recession register for this week’s webinar here.

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