Writing my talk for Friday morning at th

Writing my talk for Friday morning at the Access to Finance event, will be Hilton London Heathrow from 7

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breakfastbusinessforum.wordpress.com: In

breakfastbusinessforum.wordpress.com: International Expansion: So, you have won that contract in a new country, and now you have to deliver on it! If… http://wp.me/p1Ksxn-1S

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A fuel crisis is just like a financial crisis

Watching the news and the vast queues at the petrol stations last week, with excessive demand causing the shortage feared in the first place, puts me in mind of a run on a bank.

There was no immediate problem with the quantity of fuel available.  There was a rumour of a strike, and that combined with some less judicious comments from our political leaders led some people to think there might be a shortage.

So they go to the petrol station and fill up. They buy a bit more, a few days earlier than the might have. Another driver, seeing the normally quiet petrol station busy, thinks “There might be something to this story….I’d better fill up too” and before you know it, the queue for petrol is so severe the policing are closing the roads, garages are rationing supply and some are running out. “The madness of crowds” strikes again.

A run on a bank follows a similar pattern. There’s a rumour, which may have no substance whatsoever, that a bank X is in trouble. Those who have money deposited with the bank move to withdraw those funds. Other institutions see the cash outflows, and stop lending (risking) their money to X. X cannot pay all its depositors and you have the first domino falling, unless the central bank or other lender of last resort steps in.

When the central bank support for X becomes known, the immediate reaction of a depositor will be (a) do I have any money with X – if I do I’ll get it out now and (b) is my money safe with bank Y? If I also know that Y has lent money to X the problem spirals…and you have a full blown financial crisis.

Now substitute countries from banks, and you’ve got a pretty good pattern of what has been happening in Europe.

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Is this financial turmoil the birth pangs of a new business model?

I’m reading and hearing things that make me wonder.

Consider,  at one extreme, the occupy movements (I am not quite sure what they stand for or want, but it is pretty clear what they are against) and at the other end of the scale Professor Michael Porter’s work on Creating Shared Value and add into the mix the undercurrent from popular culture that could be encapsulated as “Big business = bad guys” you can make the case that the pressure is building on the existing “Survival of the fittest” capitalist model.

Reinforcing the pressure on this model is the movement towards philanthropy led by Bill Gates and Warren Buffet in the US and the on-going emergence of Social Entrepreneurs world-wide.

Further reinforcing the impression that the model is broken is the continuing controversy over high pay and the demands for excessive pay and bonuses to be constrained – although that seems to be more of a British obsession and I have not heard a similar level of complaint from the US.

Perhaps the starting point of the new model is to be found in finance (any model that is sustainable will have to have some means of supporting itself) and in particular in crowd funding where there is a many-to-one relationship between the funder(s) and the recipient of those funds. Contrast that to the traditional model, where the relationship is closer to one-to-one but the funder is significantly larger than the funded (think of a Bank lending to an SME as an example) and consequently has considerable leverage over the operations of the funded business.

Perhaps this is also a reflection of the internet age, where massive businesses are built almost overnight (by historical standards) and information, opinion and criticism is widely and rapidly shared.

Where does all this lead?

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Do you want to save Tax, even get a refund?

Research & Development Tax Credits

 

Author: Tim Lewis, Managing Director of M4 Business Solutions Ltd.

 

  • Claim up to double your product development costs against tax, backdated up to 3 years.
  • Paid as a cash refund or relief against future profits.
  • Allowable expenditure includes Staff costs, Consumables and raw materials, Sub-contracted costs, External labour, Heat, light and power.
  • You must meet certain criteria – but huge numbers of qualifying companies fail to claim.

 

A small manufacturer of solar energy powered signs invested £130K in R&D and obtained a £20,500 CASH refund from the Inland Revenue.”

 

This scheme was introduced in 2000 initially for Small and Medium Enterprises (SMEs), with a revised version for Large Companies two years later. It forms part of the CT600 form that every limited company submits to H M Revenue and Customs (HMRC), annually, showing the calculation of their Corporation Tax liability. As such, it is an entitlement and should not be seen as a tax avoidance measure. It is no more aggressive than Capital Allowances.

 

This is a European wide scheme, although the details vary country by country, and it is intended to encourage innovation and technological advances within the EU, as a whole, and, in our case, the UK in particular. Overall, take-up of the scheme in this country is poor. HMRC estimates that 100-150,000 companies undertake qualifying work but, last year, only 8,300 claims were made.

 

So, what is R&D? For most people it conjures up an image of boffins in white coats toiling over Bunsen burners with boiling test tubes and flasks of fuming liquids. For a very few companies, particularly in the pharmaceutical industry, this is the case but, for the vast majority, it is the D, not the R, that is relevant. Does your company undertake product development? Do you try and make your product greener, more efficiently, more cheaply? Are you trying to use more environmentally friendly production techniques or materials? Have you had to develop systems to enable you to do these things? If your development work can be readily carried out by a competent professional with reasonable experience in your field, then it is unlikely that this will qualify.

 

If, on the other hand, you have had to sit-down, scratch your head and think ‘How the hell are we going to do this?’, then it may very well qualify. You do not have to be making industry changing developments but you do have to be able to demonstrate that there was a degree of difficulty involved, that you had to innovate or overcome some form of technical or scientific difficulty and that you took a financial risk.

 

You could be developing the most technically advanced widget in the world, overcoming all kinds of technological obstacles and pushing the boundaries of human knowledge to unimagined limits on behalf of a client but, if you are being paid on a time and materials basis, regardless of the successful outcome of the project, you do not have a valid claim. On the other hand, if you undertook the project on a success fee basis, you would possibly have a valid claim. Don’t be afraid of failure. Failed projects can be valid, they often demonstrate that a degree of difficulty exists and can help to support a claim.

 

For the purposes of this scheme an SME is defined as a company with less than 500 employees and either, less than €100 million turnover or, less than €86 million balance sheet value. If a business falls outside these parameters it is defined as a Large Company. For the purposes of this article, we are confining ourselves to the scheme as it applies to SMEs.

 

Allowable expenses fall into five main categories:

  • Staff costs
  • Consumables and raw materials (this may include software)
  • Sub-contracted costs
  • Externally provided labour
  • Heat, light and power

Within the terms of the R&D Tax Credit scheme a company may make a claim for its current Financial Year, as well as the two prior Financial Years (i.e. if a company has a 31st March Year End, in January 2012 it can claim immediately for the years April 2009-March 2010 and April 2010-March 2011 and for April 2011-March 2012, once the accounts for that year have been published). The principal benefit of the scheme derives from the fact that a company can off-set a greater amount for the purpose of calculating Corporation Tax, than it has actually spent. Prior to April 2011 this uplift was 75%, from 1st April 2011 it is 100% and from 1st April 2012, 125%. Consequently, for every £10,000 of allowable R&D expenditure before April 2011, a company can claim £17,500 tax credit, rising to £20,000 in 2012. For companies that have not made a claim, this means that for prior years the tax calculation has resulted in too high a taxable profit and the claim comes about by recalculating the tax due.

 

If the company is profitable, and a Corporation Tax payer, it can receive a rebate of tax as a cash sum.

 

Depending upon the specific circumstances, if the company is loss making and does not pay Corporation Tax it can effectively ‘sell’ the loss to HMRC at a rate of 24.5p in the £, or retain the loss to set against future profits.

 

An R&D Tax Credit claim consists of two elements: a tax computation (purely numerical) and a detailed justification of why the claim meets HMRC’s criteria. This latter is the key component of the claim, requiring a considerable grasp of the projects being claimed for, a detailed knowledge of the scheme criteria and how one complies with the other.

 

This requirement to be able to relate the detail of what the company is doing to the complexity of what constitutes qualifying R&D makes this an area for experts. It is this that puts many accountants off making claims on behalf of their clients. Because they come across potential claims relatively infrequently, they are unfamiliar with the detail of the scheme and wrongly advise that no claim exists.

 

About the Author:

Tim Lewis specialises in helping companies get R&D Tax Credits and Pension-based financing.  To contact Tim call him directly on 07887-715671.

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Getting Top Value When Selling A Business?

Realising Value. I’m sure that you find that’s what you seek when you are considering setting up your company for sale.

All businesses are up for sale, whether now or in the future. It is in helping to build, and guarantee, increased and ongoing value in your business that you will be able to demonstrate that extra worth that will complement your carefully prepared sale dossier.

As I’m sure you are aware, the offer prices for a business vary widely, up to two and a half times between different bids is not out of the way. So how do you get the top bids in when you are selling, and make it an easy sale as well?

All businesses depend upon customers. And it is where a business can demonstrate a strong and ongoing relationship with its customers through its Customer Engagement Index™ that the business can show it’s a reliable and ongoing source of profit – and that’s what leads to confidence –and value – for the current owners and, in turn, for the future purchasers.

Do mergers and acquisitions create shareholder value or destroy it?

A recent study by the DePaul University of Chicago, Illinois, reported an interesting finding. The sellers of the target business make a profit, estimated at from 10 to 30 percent. This means that the value of the seller’s equity increases by about that margin on or around the date the transaction is announced. The DePaul scholars politely decline to mention cases where the profit surge occurs before the announcement, though we all know that happens.

The experience of the buyers in contrast varies widely according to different studies examined by the DePaul academics. But the debate is just about how much on average the buyers lose, not how much they gain. Most M&A transactions are a device for transferring unearned capital value from one set of shareholders to another – and always in the same direction, towards the seller. No wonder buyers are increasingly getting tough in negotiations!

These figures reflect the experience of many participants in and observers of the capital transaction market. It’s very hard to spot a winning acquisition. To persuade shareholders to part with their stock, you have to offer them something over and above the current market. It’s easy to talk yourself into a rosy view of the synergistic potential of the transaction – either in saved cost or increased revenue.

Flawed purchase processes

Often companies have the option to bid or not to bid. But here is a huge paradox. A company is bought or not bought on the basis of its hoped-for future performance. You buy a business not because you admire its past but because you believe it adds to future profits. Yet the process of due diligence is fatally flawed. The buyer and the buyer’s advisers spend endless hours going over the report and accounts, looking for weaknesses such as contingent liabilities. Yet they spend very little time looking at the future.

  • What if the customers of the target firm are only weakly engaged with it? What if their loyalty is to the current board rather than the brand?
  • What if a substantial number of their customers go AWOL before the ink is dry on the deal?
  • Customer churn is, after all, recognized as the number one XXI century devourer of profit and share value.

Concentrating on past performance alone is like steering a boat by examining the wake. What’s true of M&A transactions is also, of course, true of an IPO. Why ask investors to stump up cash without offering some comfort about the durability of the customer base?

Here is the punch line. The process of due diligence should focus serious attention on the issue of Customer Engagement, which determines future profits. The extent to which customers are seriously engaged with a supplier can be measured, if the measuring mechanisms are precise and subtle enough. Remedies can be applied if weaknesses are found. But there’s always been a problem. Customer Engagement has always been difficult to measure – until now.

Make the measurement, do the analysis, build up your Customer Engagement Index™ and achieve current cost savings, a better future for your business plus an enhanced price for the business when you come to sell.

Discover more information about how to make Customer Engagement and its measurement work for your business by clicking this link to =>>  http://www.tripleic.com now.

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Mis-measuring Customer Engagement

One of the big issues involved in coming to grips with improving Customer Engagement in your company is the difficulty of measuring it in the first place. This has been clearly highlighted by the Economist Intelligence Unit report where a whopping 47% if Chief Executives made this statement.

Have no illusions, you are trying to assess a complex relationship. And you are seeking not only to measure it but to understand where it is imperfect and what you can and should do about it.

Beware over-simplification

There are some measurement schemes that attempt to reduce the relationship to a single parameter value. That’d be about as meaningful as attempting to rate your marriage partner or significant other on a scale of 1 to 10. You can get to a number, but what does it mean? And what happens after a period when you repeat the measurement? You may find that the number has changed, but why? Or is has not changed, but the shift in the nature of your relationship over the time can certainly make it feel different.

We all love simple metrics. That’s one of the reasons that sports are so popular. A game or race starts, and by the end there is a result. Someone wins the cup, and those who wager on the result win or lose. Simple, but beguiling, isn’t it?

If you have ever been involved in sports training at a competitive level then you will be aware that getting to that single result comprises an enormous complex of skills analysis, game strategy, opponent analysis and game planning to mention but a few aspects.

Look beneath the skin

For business purposes the overall results are, at base, financial. If your company does not make sufficient sales at a sufficient margin then it will cease to exist – simple isn’t it? But to be able to work on improving those financial results, and so building a profitable future, you need measures that can do much more than a simple metric can accomplish.

You are trying to assess the strength of the relationship between your company and your customers. It is a relationship with many strands and aspects. You are seeking to reflect the relative importance of each of those strands .

When seeking information about real value and quality of your customer engagement then  the measurement must encompass all aspects of the relationship between your customer and the whole enterprise. It is  not sufficient to limit it just that shown by a series of single interactions with your service centre and then aggregated. This demands inquiry and analysis on an altogether higher plane.

Your ‘face to the world’

The ‘face’ of the organisation that your customer perceives is not just your sales people or Customer Service department, nor is it your delivery vans or shop front, but it is determined by actions and attitudes right through the organisation. Front Office, back office, internal support activities management capabilities and your organisation’s strategy each have a role to play in determining those subtle messages that customers spot subliminally and that so accurately project your firm to the outside world.

So what’s the message from this analysis? The measurement must be tripartite. It must take account not only of your customer’s views but also measure that against what’s happening internally. Inside your organisation there are two elements to be taken  into account; your employees (who deliver what your  customer perceives) and your Top Team who drive the strategy and attitudes. The customer’s views can then be matched against the two internal views and so meaningful messages can be drawn out. Messages that lead directly to actions you can take to build that Customer Engagement Index™.

Discover more information about how to make Customer Engagement and its measurement work for your business by clicking this link to =>>  http://www.tripleic.com now.

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