A range of useful information on general business topics.
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Seven ways to protect your business against a downturn | Could your business survive without you? | Getting more from business meetings | Helping the environment - and your business | Identifying and preventing fraud | Leasing equipment | Most common fraud risk indicators | Protecting against disaster | Relocating your business | Use corporate giving to improve your bottom line | When you suspect employee fraud... | Work and travel | Working from home
At AVASK we can provide businesses with advice and support on a wide range of business issues. This article suggests seven ways to protect your business against a downturn.
Small and medium-sized businesses are particularly vulnerable to economic downturns. But all too often we see companies going under that could have stayed afloat if they had taken a few elementary precautions at the right time.
The right time to protect your business against a downturn is when it is relatively strong and you still have room to manoeuvre.
Here are seven steps you should consider taking:
- Don't rely on just one or two main accounts for the bulk of your revenue. Spread the risk by expanding your customer/client base.
- Maintain close communication with your bank and share your successes and failures with them.
- Reduce the debtor days on as many accounts as possible and accustom your customers to paying promptly.
- If you have to reduce spending, do so in non-core areas of the business.
- Examine ways to carry less stock without adversely affecting your core performance
- Don't lay off staff unless you really have to, especially those who provide ideas and inspiration. Use any downturn as an opportunity for key staff to develop new skills and coach newer members.
- The marketing budget is often the first casualty in a recession, but smart businesses continue to market through a downturn and position themselves to take full advantage of the upturn as soon as it starts.
As accountants and business advisers we get to know our clients very well. From our position, it is all too clear to us that many clients are too focused on ‘today’ to give serious thought to the future, and in particular to a future in which they will not play a part.
While the immediate challenges facing you in your business and personal life are undoubtedly important, you should also set aside some time to consider what would happen to your family and to your business if you became seriously ill, or were killed or incapacitated in an accident.
It is possible to take out life assurance, and insurance against loss of earnings, but whatever event might trigger your removal from an active role in your business, whether permanent or temporary, you need to consider what steps you should take.
As a business owner, you have responsibilities to staff and customers, too. Insurance can cover the immediate financial loss, but only some form of succession plan can create a structure to pass the management and control of your business into one or more safe pairs of hands.
None of us knows what is around the corner. We can help you to formulate your own disaster plan – it is essential that you talk to us about what you can do now to protect yourself, your family and your business if the unthinkable happens.
One of the key elements of successful profit improvement is simply to get people round a table to devise solutions.
Whether it is a firm-wide performance improvement panel with one of our advisers, or just a small team focused on a specific project, the 'round table' approach has undeniable benefits:
- It enables those who are 'at the coalface' to make a contribution, thus ensuring that any decisions taken will be well informed.
- It ensures that all the key players 'own' the problem and buy into the solution, thus improving both accountability and commitment.
But there is more to a successful round table than just bringing the parties together and inviting them to say their piece:
- From the outset the discussion must be structured so that it leads to a workable solution
- Participants must feel free to contribute their ideas in a non-judgmental, non-censorious atmosphere
Focusing on solutions not problems
A simple technique that enables you to achieve both these goals is to begin with a brainstorm and introduce a simple rule that all contributions must be prefaced with the words, 'How to....'
Thus, rather than saying, 'The problem is the bottleneck at the welding station', or 'When is someone going to do something about the bottleneck at welding?' the participant would say simply, 'How to remove the bottleneck at welding...'
Develop an action plan
It is a good idea to have a facilitator who records each contribution, perhaps on a flip chart. Then in the second half of the meeting the participants:
- Choose from the contributions those solutions that seem most appropriate
- Assign specific actions to individuals to accomplish the chosen solutions
- Set timelines and agree a follow up
Experience shows that structuring a discussion in this way not only increases the chances of a positive, practical outcome but also greatly speeds up the meeting.
Using energy efficiently will not only help the environment, but could also significantly reduce your running costs, increase your profit margin and help to build a positive company reputation.
Here are nine simple and inexpensive ways to improve your energy efficiency:
- Recycle and re-use: if you use a lot of paper in the office, operate a recycling scheme, with boxes in every room
- Turn down the lights: implement a company policy of only turning on lights when they are needed
- Avoid overheating: by reducing the room temperature by just 1ºC, you can reduce your bills by as much as 8%. Aim for an optimum temperature of 19ºC
- Monitor your monitors: IT equipment is a major factor in increasing energy costs for small businesses. It also contributes to the generation of excess heat. Switch computers and other electrical equipment off when they are not needed. Where they cannot be switched off, set fax machines, printers and photocopiers to standby mode. (Note: while computer screensavers preserve the life of the monitor, they do not actually use less energy)
- Maintain equipment: make sure that lighting and heating equipment is clean and unobstructed, to increase its efficiency. Ensure that windows are draft-free to avoid heat loss. If you have air-conditioning, make sure it is serviced and that its use does not correspond with the use of the heating system
- Use high-efficiency equipment, such as low energy light bulbs - these last up to ten times longer than standard bulbs, which also waste a high percentage of their energy in the form of lost heat
- Go natural: Opt for natural light wherever possible: blocking windows with blinds and turning on artificial lights is costly and often unnecessary
- Look for trends: Make sure that the heating is only on when it is needed; if staff open windows, turn off the heating
- Consider a loan: interest-free energy loans are available to SMEs wishing to invest in energy-efficient equipment. You may also qualify for help under the Enhanced Capital Allowance Scheme: visit www.eca.gov.uk.
Your business, like every other business, is threatened by fraud. Some estimates suggest that fraud could be costing the UK economy in excess of £30 billion a year.
It is essential that you are aware of some of the most common types of employee fraud, that you can identify them when they do happen and, ideally, prevent them from happening at all.
There are, broadly speaking, two types of employee fraud. Fraudulent financial reporting is usually committed by senior officials or management, and involves altering financial statements to deceive business owners.
Misappropriation of assets is far more widespread and can be committed at any level by any employee and in many different ways. Here are some common areas where fraud can take place:
Preventing fraud with internal controls
Effective internal controls can drastically reduce the risk of fraud in your business, but every control will have an administrative cost.
You will need to evaluate the cost of additional procedures against the financial risk of fraud. Fortunately there are some inexpensive measures that you can take immediately.
- Separation of duties. It is virtually inviting employees to commit fraud if you have the same person placing orders, running credit checks, delivering goods, preparing invoices, recording transactions and collecting debts. Wherever possible, you should separate or rotate duties among several employees.
- Requiring purchase or payment authorisation. Decide on a reasonable figure and ensure that single transactions above that amount require an authorisation, either from yourself or a trusted senior employee.
- Comparing actual to budgeted expenditure. The most frequent unauthorised transactions take place via expense accounts. By comparing your budget to the actual amounts being claimed by employees, you can identify discrepancies. These may be justifiable expenses, or they may be the telltale signs of inappropriate expenditure.
By focusing on the four areas we have covered - cheques, credit control, stock and equipment and purchasing and payroll - and by introducing internal controls, you will be able to minimise the risk of fraud to your business.
Leasing equipment rather than buying it can often be better for your bottom line, but it is important to read the fine print and weigh up all the factors before signing anything. Above all, shop around and compare deals.
Below is a checklist of the most important factors to consider:
Is the initial term of the lease and the amount and timing of rental payments clear?
Do the terms of the lease provide an option for renewal and if so on what terms?
Are you allowed to sublease the equipment?
Who is responsible for maintaining the equipment? Will your maintenance costs be higher or lower than if you owned it?
Are you allowed to make any modifications to the equipment?
Who is responsible for ensuring the equipment conforms to any existing or future regulations it might be subject to?
What happens if the equipment is lost, stolen, damaged or destroyed? Does the lease specify what liability, if any, you would incur?
Who is responsible for insuring the equipment? To whom would any claims be paid?
Can you change the lease if your circumstances change?
Do the terms of the lease include a right to purchase, and if so on what terms?
Does the lease allow for premature termination, and if so in what circumstances? What penalties, if any, does premature termination incur?
What costs will be incurred at the termination of the lease, and how much of this will you have to cover?
This list is by no means comprehensive. There are many other potential pitfalls with leases such as warranty issues, regulatory requirements, taxes, license fees, and public liability. If you have any questions relating to a lease that you are either thinking of taking out, or have already taken out, contact a member of the AVASK team to discuss this further.
At AVASK we can provide businesses with support and advice in many important areas. Here are some of employee fraud warning signs to look out for.
Beware of the most common fraud risk factors for your business. These might include:
- Large amounts of cash in hand
- Small inventory with a high cash value
- Easily convertible assets (eg. tools, vehicles)
- Lack of separation of employee duties
- Employee awareness of future redundancies
- Disgruntled employees with access to significant assets
- Poor physical safeguards over cash and other assets
- Untimely and poorly organised documentation for transactions
- Lack of mandatory holiday for employees performing key control functions
- Missing or unexplained documents
- Inappropriate supervision - such as remote locations.
With the increasing reliance of companies on computers and the internet it is more important than ever that firms devise a strategy for dealing with disaster. However, research shows that many small businesses have no plan in place for coping with a crisis.
Disasters take many forms, including 'natural' causes such as floods or storms, and 'man-made' calamities caused by human error or sabotage. Careful preparation will minimise the impact on your business, so you should act sooner rather than later.
Remember: being prepared could make all the difference to the well-being of your staff and the long-term survival of your business. Even if the worst doesn't happen, you will reap the benefits, by reducing your vulnerability to everyday risks and improving staff confidence.
Here are some of the areas to consider:
One of the consequences of running a successful, growing business, is that there may come a time when you need to consider moving to alternative premises.
However, relocating your business necessitates careful planning. From choosing your new premises, to preparing your staff for the forthcoming changes, you must consider each stage of the process carefully.
Are you a keen advocate of corporate giving? Do you see it as an effective strategy for improving your bottom line? Or do you just make token contributions to worthy causes while remaining unconvinced of its benefit?
Contribution to profitability
Approached in the right way, corporate giving can make a substantial contribution to your profitability. It can:
- Improve both the motivation and the commitment of employees
- Strengthen customer/client loyalty
- Create good publicity and add considerable leverage to marketing campaigns
Indeed, it can be a major factor in the overall performance of your business.
But you need a well-thought-out strategy with clear objectives, planned implementation, and regular monitoring of results.
Appeal to your stakeholders
Choose the cause or causes you support carefully. Make sure they resonate well not only with the public at large but also with your stakeholders - your customers, employees, suppliers, investors, and local community.
When stakeholders are positively disposed to your company almost everything that drives business success is enhanced:
- Customers are happy to buy from you and to recommend you to others
- Employees are proud to be part of the company and identify more closely with its success
- Suppliers are keen to share the kudos by building a stronger relationship with you
- Investors increase their confidence in you and are more ready to back you
- The community becomes generally more supportive
It is important to display a genuine interest in the objectives of the cause you support.
No one expects a business to be philanthropic just for the sake of it. Indeed, most shareholders would have reservations about the idea of charitable support that had no apparent payback. But equally, any attempts to generate publicity should be handled sensitively, as people do not like to feel that a company is exploiting a charitable cause for commercial ends.
Very often, the most effective kind of corporate sponsorship involves participation in the cause's core activities at local level rather than grandstanding at high profile events.
Suppose you suspect that somebody in your company is stealing or involved in a fraud scheme.
You may discover an employee working unreasonably late, or the person in charge of purchasing may be spending an unusual amount of time with a supplier.
Perhaps a member of the sales staff hands in a large expenses bill, but claims to have lost the receipts.
What should you do?
Innocent until proven guilty
A strong suspicion that an employee is committing fraud will put you in an awkward position. Bear in mind that behaviour that looks dishonest often turns out to be perfectly legitimate. Avoid jumping to conclusions or immediately confronting the suspected person. Instead, consult your legal advisor and, if necessary, he or she will recommend the services of a forensic accountant.
Until you have proof of wrongdoing, you should exercise caution and attempt to carry on with business as usual. An investigation should be discreet, to avoid alerting the employee to the fact that they are under suspicion until the appropriate moment.
If fraud is discovered
If a case of fraud is discovered, you must decide how to tackle the matter. Many companies vigorously prosecute all crimes perpetrated against them in court, to convey the message that fraud and theft will not be tolerated. Others prefer to settle these matters privately to avoid publicity.
When travelling on business, you want to be efficient, connected and comfortable. Here are some ideas to help make your business trips more successful - and enjoyable:
Look for the best deals
The internet has become invaluable for finding the best deals on hotels, flights, car hire and travel insurance. You can nearly always find discounted rates if you look around long enough.
You may want to consider travelling to some of the major European cities by train, as this can be cheaper than flying and often faster, once time getting to - and through - the airport is taken into account.
It also makes sense to get the most from your air miles and hotel stays by joining reward schemes.
Do your research
The internet allows you to find out virtually everything about your destination in advance - so use it! Look out for weather warnings and significant local dates which may cause disruptions or accommodation shortages. Download road and subway maps well in advance, and make sure you're up to speed with the local protocol when it comes to such things as tipping and greeting.
Turn delays into an advantage
Be realistic and always allow extra time for delays. If you do get stuck, you can use the time to get some work done - many airports have business areas where you can access the internet and print documents. You can get the latest travel information, including road, rail and flight delays before you leave, via your mobile phone or the internet.
Avoid the stress
Some people find travelling exhausting, stressful or lonely. Remember to switch off your laptop and give yourself adequate time to rest and if you can, take time out from work to explore some of the local sights. E-mail is becoming the most popular way to stay in touch with home, so make sure you have an account that you can access anywhere. If you do want to phone home, check that your mobile has network coverage in the country you are visiting, since this can be cheaper than calling from the hotel.
Some of us have to work at home; others see the idea as the perfect solution to a noisy office, endless interruptions, or a long and expensive commute.
But if you are seriously thinking of leaving the office on a permanent basis, there are a number of questions you must first consider: