Dividends – Some pitfalls

Many directors of SME companies take both a salary and dividend from the company with salaries set at a tax effective level. This is accepted to HMRC and should not give cause for concern.  The salary itself should be treated in the normal way via the payroll system and normally is.

However with dividends it’s a different story. And here problems start to arise. Not only from a compliance perspective but also because of tax issues arising. Continue reading

SME’s and Cash flows

It’s tough being a SME especially when it comes to cash. Banks are restricting their lending especially to SME’s and when they do lend charge interest rates well above that extended to the large corporates. The average interest rates for loans less than £1 Million are double that for loans above £20 Million (N Blake Economic Advisor Ernst & Young).

Corporates further put pressure on their SME suppliers by paying suppliers on average 34 days after term dates (range 30 to 90 days). In the UK late payment is endemic despite an EU directive for all companies to pay within 30 days and a public sector commitment to pay invoices within 10 days. Ask any SME owner dealing with Government (Inst. of Credit Management).

Yet the SME sector is significant as proven by some statistics:

  • SME’s comprise 59.1% of private sector employment
  • 48.6% of private sector turnover
  • Turnover in the SME sector is £3.2 Trillion!
  • They employ 22.5 Million people

(Dept. for Business Innovation & Skills)

Yet their experience of the economic climate is vastly different then for the corporates. The increasing delay in both international and domestic payments (British Chamber of Commerce Quarterly Economic Survey) combined with the lack of access to funding is playing havoc with cash flows.

So what can be done? Many strategies can be adopted but one which is neglected in that 90% of invoices are still submitted on paper is e-invoicing. Aside from cost savings it will ensure early arrival at customers. The use of direct debit systems is increasingly being adopted with SME‘s lagging as perceived to be difficult to set up. Using DD will be especially useful to SME’s selling B2B. A scheme which uses this is the SEPA B2B Scheme and is used for lending decisions as well as it ties in well with the increasingly tightly integrated physical supply chains.

Enlightened corporates such as Tesco, B&Q and M&S have introduced supply chain finance to ensure that not only suppliers are paid more quickly but also enables these suppliers to borrow at a lower rate of interest. The key to this model is the visibility of the supply chain finance which enables banks to make decisions on real-time information as opposed to the traditional historic based balance sheet lending. This model will work less well when the customer base is themselves SME’s.

Relying on paper based invoices and traditional accounting processes leaves the SME with little bargaining power. By adopting both sales and supplier invoice e-invoicing with direct debit payments mechanism this will ensure terms are adhered too and payment will be sooner and being visible and transparent to banks easier to fund at better rates.

With the economic outlook remaining poor SME’s will need to look at alternatives to managing cash flow from the traditional methods.

(Additional sources AIA July/August 2012)

Warning signs of a business in trouble

Below are the signs that a company is in trouble. Some of these should be an indicator to the directors but some will be apparent to companies extending credit as well. If any are pertinent to your company you should seek advice from turnaround specialists.

Bank 

  • The overdraft is always at the limit.
  • The bank always wants more information.
  • The bank has returned cheques.
  • The bank has refused to increase the overdraft or wants its facility reduced.
  • The bank refuses to provide a term or EFG loan.
  • The bank wants to introduce investigating accountants for an independent business review. Note, the banks uses the big six so fees, which are paid by the company, are huge with amounts of £6,000+ the norm.
  • The bank asks for increased security.
  • The bank wants personal guarantees or increase them.
  • The bank wants a charge on personal property.
  • The covenant with the bank is often contravened. Continue reading

Green credentials for SME’s

PRESS RELEASE – UKBA

November 2010

Sustainability becoming more important for SMEs

Sustainability is an important issue not just in terms of global warming and carbon footprint but in all aspects of humanity’s input to the environment. UK Business Advisors (UKBA) warns that many companies both large and small together with central and local government are insisting on their trading partners having ‘good green credentials’.

UK Business Advisors (UKBA) is highlighting the new ‘BREEAM In Use’ standard from The Building Research Establishment (BRE), which has established the international standards for environmental assessments. The BREEAM (Building Research Establishment Environmental Assessment Method) standards have been used to rate new buildings for several years, but a revised version is now available. This enables companies to obtain a rating against three different aspects of their operations:-

•          The asset performance (i.e. the buildings performance)

•          The building management performance

•          The organisational efficiency

Assessments are carried out against a number of different criteria, energy, water, materials and waste, health and wellbeing, pollution, transport, and land use and ecology.

The assessment can be carried out on line by company personnel but a licensed BREEAM In Use Auditor will need to be appointed to verify the assessment and issue the certificate. The assessment is relevant to all non-domestic: commercial, industrial, retail and institutional buildings.

Geofrey Steward, a licensed BREEAM In Use Auditor within UKBA advises, “The BREEAM certificate enables the building owner and occupants to gain recognition for the building’s environmental performance ‘In Use’.  Help and advice is available from auditors. Completing the assessment will enable building managers to reduce the running costs and improve the environmental performance of existing buildings, adding to their competitive advantage”.

For full details visit the UKBA website www.ukba.co.uk or contact Richard Terhorst on 0845 009 5360