Today sees the start of another new scheme from the Chancellor in an effort to get the wheels of British commerce moving again - the government's National Loan Guarantee Scheme.
Over the next six months the government plans to make a select few banks provide cheaper loans to SMEs. Cheaper means that the banks will offer a decrease in around 1% on the APR they had previously been charging.
How does the scheme work?
Well, under the terms of the National Loan Guarantee Scheme, government backing will allow the few banks to borrow more cheaply in the wholesale money markets. So basically because the tax payer is being a guarantor to these loans the banks get the money more cheaply.
The Chancellor said the full benefits of lower interest rates would be passed on to businesses, many of whom have been unhappy since the start of the financial crisis five years ago about the availability and cost of borrowing.
Five banks – Barclays, Santander, Lloyds, RBS and the much smaller Aldermore.
What about HSBC?
Because HSBC is much stronger and more stable than the other banks involved it's already able to take advantage of the lower interest rates which will now be available to the others. So HSBC already has access to cheap credit but isn't making that available to businesses. What will make it start now, surely not just some competition?
Some might argue that this new scheme goes to show what a complete flop Project Merlin turned out to be. Banks didn't do enough then to help small businesses before and what will change now? In truth, I'm not quite sure. Trading conditions are still tough and there isn't a desire to take onboard lots of debt which arguably caused this problem in the first place.
But one thing is for for sure. The government believes our economy can still borrow its way out of trouble. Wise? Only time will tell.
‘A bucket list for my business? What?!’
The concept of a bucket list is probably nothing new; you might well know it from the film starring Morgan Freeman and Jack Nicholson where two terminally ill men suffering from cancer escape from a hospital ward and head off on a road trip with a wish list of to-dos before they die. A very funny film which ends, as you would expect in tragedy.
The idea of a bucket list for your business might seem a bit strange, perverse even. However, this isn’t a collection of fun experiences to have before you go bankrupt, it’s a list of steps you can take to stop the rot and get your business on track.
This list isn’t going to solve all your problems by any means, but hopefully it may just give you some food for thought when it comes to reducing your overheads, cutting costs and getting your business back in the black.
1. Cut the money you pay for your gas and electricity
As you would expect from a commercial energy broker this one has to be top of the list or I wouldn’t be doing my own business justice.
Far too many businesses pay over the odds for the gas and electricity that they use. Often business owners don’t appreciate that they do have a choice and that they don’t have to accept renewal prices that are thrust at them by their existing supplier.
Money saved here will go straight on your bottom line. Remember - revenue is vanity, profit is sanity! Give us a call on 0800 688 8568 or get us to call you to find out more.
2. Look at your insurance products when they come up for renewal
You might be surprised how many different elements you have to your business insurance:
- public liability,
- employee liability (mandatory),
- premises (buildings cover),
- motor vehicle (might be mandatory),
- employee travel (if your employees go abroad),
- fidelity guarantees,
- key person,
- contents cover,
- plant and business equipment,
- goods in transit,
- money (if you handle cash, cheques and other negotiable documents),
- trade credit,
- business interruption,
- product liability,
- professional liability,
- directors and officers.
This list isn’t exhaustive; what cover you need depends on what type of business you have. But it is easy to see that these things can easily get out of control. Start digging out that paperwork, make sure you know what you need and what you don’t. When each policy comes up for renewal make sure you check if you need the policy, then shop around if you do, and cancel it if you don’t.
3. Do you have too many staff?
The topic of redundancies is never a nice one. No one wants to make people redundant and you must remember that in the short term it costs more money to make people redundant.
It is important not to underestimate the devastating impact that redundancies can have on a business, destroying morale and making remaining staff feel insecure. However, if by taking this measure it secures the longer term life of the business then there might always be the opportunity to get those staff back on board once you enter a growth phase again.
4. Hold off from big purchases
If there is some new piece of manufacturing equipment you planned to buy, ask yourself ‘do I need it right now?’ The long and short of the matter is that if you need this equipment then it will need to be bought in order for you to keep trading, but longer you can wait to buy it, the better.
If you do need, look at other ways to get it. For example, is there a way to finance so you aren’t immediately going to feel the full impact of the purchase? Could you just lease it it rather than buy it?
5. My desk is bigger than your desk!
How much space are you occupying? Do you need it all? As much as we would all love to have the windowed corner office on the 20th floor with the walnut desk and private washroom we need to be realistic.
Think realistically about whether you can squeeze your business into a smaller space. If you can, you could rent out the space you’ve created. This might not be so easy if you don’t own the premises, but on longer term leases you might be fine. Site and data security will need to be catered for, but the idea is worth exploring, even if it’s only for a short period of time.
6. ‘We’re supposed to haggle!’
You may or may not have seen Monty Python’s Life of Brian. But I would like to draw your attention to a scene where Brian is trying to escape some soldiers and runs off to the market place.
Never, ever, ever accept the first price that‘s offered to you. If you were going to buy a new house you wouldn’t offer the asking price would you? Well, not at first anyway.
When was the last time you tried to negotiate rates for the items you purchase from your suppliers? You may have been with them for years but that doesn’t mean you aren’t within your rights to ask for a better deal.
In theory the worst that can happen is that you end up paying the same price as you are already paying. Here are some haggling tips:
- Don't be afraid to ask. You don’t ask you don’t get. Be explicit about what you want and what you don’t.
- Never negotiate against yourself. If you’ve made an offer, wait for a response before making another offer.
- Get it in writing. As Samuel Goldwyn once said: ‘An oral agreement isn't worth the paper it's written on.’
- Know your bottom line. It needs to meet your needs or you might as well not bother. You need to know when to stop and what your drop-dead point is.
- Establish a fall-back plan. Know your best alternative if you face an unsuccessful negotiation. Without a fall-back position, you are left with no alternative but to negotiate until a deal is reached, even if that agreement is unacceptable.
7. Talk to someone who knows
Don’t delay, speak to someone who can give you financial and legal advice as soon as your business starts getting into trouble. This will give you time to assess the alternatives open to the business.
You should seek professional advice immediately if:
- you cannot cover your debts;
- the business receives a County Court summons;
- you can't pay staff wages;
- there is an acute lack of working capital.
Your accountant, who may already be familiar with your business, may be able to advise you. But if they’ve allowed to you to get to this position you’re in, you’ve got to ask whether or not they are the right person to help. Don’t be afraid to find someone else who you can have full confidence in.
8. Cash is king
If there are people who owe you money, what are you doing about it? You should be invoicing people as soon as possible and expecting them to pay on the terms which you agreed with them. If the payments haven’t been forthcoming, what have you been doing to follow them up? Once again don’t be afraid to ask. Just make sure you don’t get angry, because that won’t help anyone, especially you. Some basic steps to follow should include:
- make your payment policies clear at the time your services are agreed;
- accept all forms of payment and encourage credit card payment;
- get a deposit in advance;
- always let the customer pay when they offer;
- make arrangements for payment before you deliver the final product;
- follow up every day until you receive your money;
- apply your payment policies to every single customer;
- contact the credit agencies, make sure people know if some is a non-payer.
9. Don’t over-trade
Over-trading happens when businesses take on work, but don’t have enough current assets or working capital to meet the needs of the customer. This is usually common in young, rapidly-expanding businesses and it can be extremely serious, even fatal. This problem is often exacerbated because,although you pay suppliers on credit, your customers may well pay you on credit too and it doesn’t take much to upset the equilibrium. (Hence the importance of point eight.)
10. When all else fails...
If you have done everything you can to pull in the purse strings and you still can’t seem to sort it out, you have one more option before ending up insolvent. Explore getting a company voluntary arrangement (CVA).
You can use an insolvency practitioner to prepare and negotiate a company voluntary agreement between you and your creditors. This is a breakdown of how and when you need to make repayments to creditors.
A meeting will be held to present your proposals to creditors; 75% - by value of debts - of the creditors present or voting by proxy must vote in favour of the arrangement for it to be binding on all both you and all the creditors. Recently there have been some changes to insolvency rules that mean the meetings, voting and communications can be made electronically as well as in person.
You can find an insolvency practitioner with The Insolvency Service which is a quango provided by the Department of Business, Innovation and Skills.
I hope that you have found the points listed above a useful prompt to think about your business and what you can do to ensure that you stay on track and continue to trade in a successful way.
If I can just reiterate one more thing, it would be please don’t suffer in silence; if you need help ask for it. Even though things can seem tough, it is possible to recover and thrive again.
One of the biggest pitfalls of the business energy market is the practice of ‘rolling over’ your contract. Why is it a bad thing, and how can you avoid it?
It's cute when your dog rolls over, but you don't want your business energy contract to do the same. Image by via mtsofan Flickr
If you don’t leave plenty of time to cancel your business energy contract before it’s due to end, your energy supplier can (and most probably will) roll you over on to a new one, whether you like it or not. This new contract probably won’t represent the best possible price you could get for your business, but you’ll be stuck with it until it comes to an end.
It's unfair and can leave you out of pocket, so, what can you do about it?
Well, you need to make sure you cancel your contract in good time. The notice period will usually be somewhere between 29 and 90 days before your contract is due to end. (Check your contract or your supplier’s website to check.) We’ve got two things that will help you keep on top of this:
1. Get our free business energy meter spreadsheet
Use this spreadsheet to fill in crucial details about all your energy meters and contracts - save a copy, print it out and pin it to your wall, staple it to your calendar or diary...whatever you need to do to make sure you remember to act. Get the spreadsheet
Get the spreadsheet here - just click ‘File’ and then choose whichever option you prefer from the ‘Download as’ menu, or print it out. There’s two sheets - one for gas and one for electricity.
2. Sign up for our free roll over reminder service
For more information on rollover and business energy contracts visit our partner company Business Juice.
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- Business week in brief: 11th May 2012
- Ed Miliband and the Queen talk energy
- Interview with Steve Fitzsimons of new business energy supplier, Hudson Energy
- Business week in brief: 4th May 2012
- The see saw of corporate profit
- Business week in brief: 27th April 2012
- EDF Energy’s Business Customer Commitments: four key pledges
- Businesses buck the trend when it comes to smaller energy suppliers