Welcome to the June 2019 edition of our Small Business Tips.
How To Use This Update
Our Small Business Tips Updates are a mix of the practical – a summary of technical updates from the previous month – and articles which we provide as food for thought.
For this second section, find a quiet corner, grab a coffee, and use it to generate some quality contemplation about your business. Our aim is to provide enough varied content to give you the opportunity to think differently about your business, to think about the future and to generate some of your best ideas.
BEWARE YOUR BOTTOM LINE
The Office for National Statistics pointed to potential further squeezes on company margins, as it revealed consumer inflation (CPIH) of 2% in the year to April 2019, whereas factory input inflation (average of materials and fuels used in manufacturing) was 3.8% in the year to April 2019. Combined with a rise in average wages in the first quarter of 2019 of 3.3% this puts considerable pressure on company profitability.
FINDING GOOD PEOPLE JUST GETS HARDER
The ONS also reported that the number of job vacancies continues to rise – highlighting the continued challenge around recruitment in a competitive marketplace. The vacancy rate for hotels and restaurants remains consistently higher than for other sectors.
A Red Flag Alert from independent insolvency firm Begbies Traynor found that the number of UK businesses in “significant financial distress” in the first quarter of 2019 has increased 1.4% to 484,000. 16% of all UK businesses were in financial distress at the end of March. Property and construction were particularly affected as investment decisions are deferred and consumers hold back on big ticket purchases.
TIPS ON TIPS
Accountancy firm BDO identified restaurants and takeaways as a key focus of HMRC – making up 26% of businesses “named and shamed” as part of their crackdown on tax evasion. HMRC is thought to be particularly focused on taxes lost through tips and can pursue businesses with incorrect tips schemes for unpaid taxes, plus interest and penalties.
Food For Thought
BREAKING HABITS CAN BE WORTH ITS WEIGHT IN GOLD
A recent study from the University of Bath found that grocery shoppers who use their phones in the supermarket end up spending, on average, 41% more than those who don’t.
This perhaps surprising finding is attributed to the fact that using your phone distracts you from your usual patterns and your “auto-pilot shopping routine” whereby you subconsciously rush through the shop according to established patterns as you already know where everything is that you want. By being distracted, you actually slow down and spend more time in the store – and, crucially, think more about your decisions and what you are going to buy.
Whether you are breaking in to an established market as a new entrant, or otherwise trying to be heard in a crowded marketplace, it is worth considering the power of distraction to help people consider you on your merits.
It’s also worth considering how you might be on autopilot when it comes to running your business. Take the time to break your habits every now and then, take a step back, and see things for the first time – just to sure you are on the right path.
BEWARE THE SELF-FULFILLING PROPHECY
Mothercare – already known to be struggling due to the challenges of being on the high street – recorded higher pre-tax losses and a further decline in UK like-for-like sales of 8.9%.
Mothercare’s struggles are well-known, and the need for restructuring unarguable, but what is notable about these latest set of results is the reasoning attached to some of the sales decline by the retailer. Not only does closing stores reduce sales directly, but Mothercare said that the closures “led to concerns about buying our products….the worry being that the Mothercare business may not survive.”
Not only is it important to consider all potential consequences of a course of action when taking the decision, but it is vital to maintain the confidence of suppliers and customers alike whatever stage of the business cycle you are at. Having a clear long-term vision and credible plan at all times is vital to achieve this.
A RICHER EXPERIENCE
Julian Richer – the founder of the Richer Sounds chain of HiFi stores – was in the news a lot last month as a result of his decision to hand over control of his business to his employees, along with a cash bonus for everyone.
There is no shortage of interesting observations about someone as unorthodox as Julian Richer, but this is an opportune time to consider some of the reasons behind his success.
The fact that (although understandably excited) a lot of the Richer Sounds employees were not completely surprised by his decision to gift them shares and cash tells you a lot about Mr Richer’s attitude towards his people. “I’ve been running my business for 40 years and the overriding thing I’ve learned is that it’s all about the people. If you treat your people right, then they are going to be happier, give a better service, stay with you, they are not going to steal.”
There was, however, an equally powerful motivation for this decision – which was to ensure the succession of the company itself. Mr Richer wanted Richer Sounds to be in the hands of people who have proven they care, as opposed to selling to a third party with unknown plans and motivations for the business. Staying true to his vision and passion for the business has ensured success for 40 years, and this is an elegant way to try to continue that legacy after retirement.
Finally, Julian Richer himself attributes some of his success to what he terms his “cautious, conservative approach” to expanding the business. This led him to choose prime locations for every store he opened and largely avoid the challenges seen by other high street chains that have large numbers of sub-optimal sites in their portfolio. Never sacrificing due diligence in the interests of speed of growth means the quality of your decisions will remain high and reward long-term success.
THE IMPORTANCE OF PRODUCTIVITY
Perhaps the single biggest advantage you can give your business is to understand how productivity plays a part in long-term success and adopt measures and initiatives that ensure you focus on it.
Without productivity gains, you are not only at risk of losing competitiveness, but you will not be able to reward your people in the way you might like and you are in real danger of ending up in a vicious circle.
Find out more in our blog post here.
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