In a piece of unintentional but spectacularly good timing I was up in my home town of Oban this Easter at the same time as it had the visiting sperm whale in the bay. After days of walking in and out of town, seeing lots of folk scanning the bay for it, and not seeing it I finally did. Managed a few photographs the best of which I've attached.
Happily after a few days Easter break in the town the whale swam safely back out to sea.
Recent Posts
- The Oban Whale
- Leapin' Lizards!
- Everything you've ever wanted to know about LIE-BOR
- Company valuation is an art?
- Short term tax benefit for companies investing in assets
- Affluence aint what it used to be.......
- Young directors get more offers for their businesses?
- The C-word and 7 Other Words to Avoid at Work
- Planning to Sell? How to answer THE most important question
- What went wrong - Europe and the Banks
April 2013
Links
Recently on this blog
Recently on other blogs
British Blogs
April 25, 2013
April 17, 2013
Leapin' Lizards!
I'm on stage with SIMADS production of Annie next week at the Burgess Hall in St Ives, playing Warbucks. The show is on at the Burgess Hall in St Ives from Tuesday 23rd to Saturday 27th April. The matinee is already sold out, but there are some tickets left for all the other performances. Full details including the ability to book online are on SIMADS website - at www.simads.co.uk
Annie is a Broadway musical based upon a popular comic strip Little Orphan Annie (from which the title of this post derives) with music by Charles Strouse, lyrics by Martin Charnin, and the book by Thomas Meehan. The original Broadway production opened in 1977 and ran for nearly six years, setting a record for the Alvin Theatre. It spawned numerous productions in many countries, as well as national tours, and won the Tony Award for Best Musical. The musical's songs "Tomorrow" and "Hard-Knock Life" are among its most popular musical numbers.
Those who know the story might spot some resonances with today's economic troubles amongst the story of the 11 year old orphan. The story takes place during the recession - and during one scene President Franklin Roosevelt holds a cabinet meeting. Warbucks joins him along with Annie - who sings to him and inspires the "new deal". Perhaps I should send a personal invitation to George Osborne? If he can't make it perhaps he'd like to watch the video below as inspiration for his next budget?
March 15, 2013
Everything you've ever wanted to know about LIE-BOR
We all now know that bankers have manipulated LIBOR and been caught doing it. But why does it matter and why would the United States be worried about LIBOR? It's London Interbank Offer Rate after all?
Its because LIBOR influences a wide range of products across 10 global currencies. It sets the basic interest rate for products in the United Kingdom, Europe, much of Asia and to some extent in the
US. So we’re lucky to have branded it "London", because there is a separate daily "LIBOR" rate,
for each currency involved.
Private banks (like Barclays, RBS and others) report the rates at which they believe they could get borrowing from other banks. The estimates are collated and published each day, setting the basic
interest rate from which all others are calculated.
Falsely reporting LIBOR is the equivalent of a consultant heart surgeon lying about a patient’s blood pressure to make the results of his treatment look impressive.
So how does it work? How are Libor Rates Calculated? The British Bankers' Association selects "panel banks" which are asked how much interest they think they would be charged by other banks if they were to borrow money in certain currencies and over certain periods of time. These panel, or "contributor banks", submit their perceived borrowing rates daily. Reuters collects the rate information from all contributor banks and produces an adjusted average. Depending on the currency involved with the rate, there are 7 to 18 contributor banks.
The current 18 panel banks for the US Dollar include US, Canadian, German, Japanese, Swiss and amongst others, Barclays, HSBC, Lloyds and RBS. This is why the US regulator was sufficiently cheesed off to fine in the States, at the same time as the UK FSA fined banks at home.
Neither Barclays nor RBS could have influenced LIBOR on their own - that required collusion between banks. This collusion moved rates up or down over a period of years and helped enhance individuals bonuses and bank profits/reputation. Later, during the financial crisis, banks wanted to appear healthy, so they submitted lower borrowing rates than they could actually achieve which showed their reputation / credit in the market in a better light than they merited.
With acknowledgements to David Corneilus of Bishop Fleming (a fellow Kreston member firm to PEM) upon whose excellent and more detailed post this is based.
March 12, 2013
February 22, 2013
Short term tax benefit for companies investing in assets
Changes to Capital Allowances
If you are at all likely to be investing in assets over the short to medium term there are some changes to the regime that might make it worth accelerating your plans. Two important changes to the Capital Allowances legislation were announced in the 2012 Autumn Statement.
Annual Investment Allowance (AIA)
The AIA was introduced with effect from 1 April 2008 and is a 100% deduction for business expenditure incurred on qualifying plant or machinery (other than cars). The announcement in the 2012 Autumn Statement that the AIA would increase from £25,000pa to £250,000pa, whilst to be welcomed, isn't as straightforward as it first appears.
As a reminder, there have been several changes to the AIA in recent years:
From 1 April 2008 £50,000
From 1 April 2010 £100,000
From 1 April 2012 £25,000
From 1 January 2013 £250,000
From 1 January 2015 £25,000 (proposed)
To complicate things further there are transition rules not only when the allowance increases but also when it decreases, which affect the magnitude of the AIA available to a company in a particular accounting period. Finally, you need to bear in mind that the increased AIA may only be with us for 2 years so some businesses may wish to accelerate capital expenditure in case this more generous AIA is not extended.
Short Life Assets (SLA)
Another change which may be beneficial to your business is the extension of the period over which assets can be treated as short life assets from 4 to 8 years. The advantage of this treatment is that a balancing allowance i.e. full tax relief for capital expenditure can be obtained without a cessation of the trade if the elected asset is disposed of for less than its tax value within this 8 year period. This is beneficial for assets which are likely to be scrapped or sold for a negligible value within 8 years of acquisition. The company must make an election for an asset to be classified as a SLA.
What to think about?
If you're planning to incur significant capex in the near future it would be worth speaking with your tax adviser - my tax colleagues at PEM are working with a number of clients already to maximise their capital allowances claims.
January 23, 2013
December 20, 2012
Young directors get more offers for their businesses?
Interesting blog post from John Warrilow of "Sellability Score" fame on the interesting finding in a
John did an analysis of responses to the Sellability Score questionaire - if you want to get a quick and interesting view on the sellability of your business try it here. This found that the response to the question "Have you received a writeen offer (e.g. letter of intent, expression of interest) to buy your business in the last year" gave a quite skewed response. 26% of owners aged 32 or younger had received offers comparted to only 12% of those older entrepreneurs in the survey.
John puts forward some interesting thoughts as to why this might be:-
Energy - Folk buy these businesses because if they can retain and motivate the entrepreneur he can really give energy to their business ongoing. I've certainly seen the owners of some businesses we've sold go on to have great careers withing the purchasing company as they bring it new energy.
Acquihire - you buy a company for the people not the product. This is interesting as often people based busineses such as the software companies around Cambridge will have a metric for assessing acquisitions based on a "price per skull" or "price per engineer" quite apart from EBIT multiples and so forth.
Facebook - I'm less convinced by this poing - which I think is that these entrepreneurs are more tech savvy "of the Facebook generation" and so can inject social media savvy into the acquiror. To me this feels like something one could hire or maybe its a variation of the Acquihire point.
There is a practical point related to this - if you're a buyer why not factor in the age of the entrepreneur into your acquisition search criteria. Databases of corporate data allow one to search on director and shareholder ages - so this might produce an interesting list.
However if you want a well researched contrary view have a look at this blog post from entrepreneurship.org about Australian academic research showing most entrepreneurial activity is amongst 55 to 64 year olds, and that they're much more tech-savvy than the Mark Zuckerberg / Facebook stereotype might imply.
September 07, 2012
The C-word and 7 Other Words to Avoid at Work
The majority of businesses in the U.K. started out as service companies.
If you want to own a web design firm, you don’t need a lot of money, just a technical knack. Enterprising professionals who know how to get the media’s attention can start their own pubic relations firms without much more than a mobile phone. No capital required.
But if you want to build a valuable company – one you can sell – you’ll want to stop presenting yourself as a service firm. Consultancies are not usually valuable businesses, because acquirers generally view them as a collection of people who peddle their time on a hamster wheel. The typical way to sell a consultancy is for the consultants themselves to trade their equity for a job, in the form of an earn-out that may or may not have an upside.
Consider re-positioning your company out of the ‘consultancy’ box. Depending on your business, you may need to change your business model and ‘productise’ your service. One of the first things to do is to stop using consulting company terminology and replace it with the terminology of a valuable business:
Consultancy
Defining your company as a ‘consultancy’ will announce to the market you are a collection of people who have banded together around an area of expertise. Consultancies rarely get acquired, and when they do, it is usually with an earn-out. Replace ‘consultancy’ with ‘business’ or ‘company’.
Engagement
An engagement is something that happens before two people get married; therefore, using the word in a business context reinforces the people-dependent nature of your company. Replace the word ‘engagement’ with ‘contract’, and you’ll sound a lot more like a business with some lasting
value.
Deck
A deck is a place to have a glass of wine on. It’s not a word to use to describe a PowerPoint presentation unless you want to look like a ‘consultancy’.
Consultant
Instead of describing yourself using the vague term ‘consultant’, describe what you consult on. If you are a search engine optimization consultant, who has developed a methodology for improving a
website’s natural search performance, say you ‘run an SEO company’ or ‘help companies improve their ranking on search engines, such as Google’.
Deliverables
Consultants promise ‘deliverables’. The rest of the world guarantees the features and benefits of their product or service.
Associate, engagement manager, partner
If you refer to your employees with the telltale labels of a consultancy, consider replacing ‘associate’, ‘engagement manager’ and ‘partner’ with titles like ‘manager’,” ‘director’ and ‘vice-president’, and you’ll reduce the chance of your customers expecting a bill calculated at 10-minute increments.
Clients
The word ‘client’ implies a sense of hierarchy in which service providers serve at the pleasure of their client. Companies with ‘clients’ are usually prepared to do just about anything to serve their clients’ needs, which sounds great to clients, but also telegraphs to outsiders that you customise your work to a point where you have no leverage or scalability in your business model. Would your ‘clients’ really care if you started referring to them as ‘customers’?
It’s easy to get stuck in a low-growth consulting company. ‘Clients’ expect to deal with a ‘partner’ on their ‘engagements’, so the business stalls when the partners run out of time to sell. If a company ever
decides it wants to buy your consultancy, acquirers will know they have to tie up the partners on an earn-out, to transfer any of the value. When it comes to the value of your business, optics matter and the first step in avoiding the consulting company valuation discount is to stop using the lingo.
The Cambridge Perspective
This is all very relevant in the Cambridge technology market. We see many local tech firms
which are essentially consultancy based, and the holy grail for most of these guys is to create a product line. Why? Put simply because having a product along with the IP (tech and possibily brand related) builds value in the company beyond the relatively lower value of consultancy income. There is plenty of precedent around here for consultants spinning off successful product companies. A high profile example would be Cambridge Silicon Radio (CSR) which span out of Cambridge Consultants. An example of a consulting business generating product and IP to build value would be local Inkjet specialist Xennia - we advised on the sale of Xennia to Dutch plc Tencate.
August 07, 2012
Planning to Sell? How to answer THE most important question
Many business owners believe the act of selling their business is similar to passing the baton in a 400 metre relay: once you’re finished running, you get to relax. In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalise on the investment they’re making.
THE Question
At some point in the process of selling your business, a prospective buyer will ask you – usually quite casually – “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others. As advisers we often get asked this one about businesses we are selling, but you can be sure that the buyer will look you in the eye and ask it when you get to meet them.
Buyers ask THE question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.
Obviously you don’t want to lie, but there is a right and wrong way to answer THE question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realise the potential locked inside your business.
Here are some suggested responses based on your age.
If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in merging your business with theirs: “In order for us to get to the next level, we
need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the partner brings to the table>.”
If you’re between 40-55 years old, most people will understand the need to shore up your personal balance sheet: “I’ve reached a time in my life where I want to create some liquidity from the value I’ve created so far, and at the same time I want to find a partner who can help us get to the next level.”
If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business. “I’m at a stage where I need to start thinking about retirement. It’s a long way off yet, but I want to be proactive.”
Rehearse your answer to THE question so it becomes a natural response when you are inevitably asked THE question by a potential buyer. Your honest, if rehearsed, answer delivered face to face will be powerful and convincing.
July 09, 2012
What went wrong - Europe and the Banks
Helga is the proprietor of a bar. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem she comes up with a new marketing plan that allows her customers to drink now, but paylater.
Helga keeps track of the drinks consumed on a ledger (thereby granting the customers' loans). Word gets around about Helga's "drink now, pay later"marketing strategy and, as a result, increasing numbers of customers flood into Helga's bar. Soon she has the largest sales volume for any bar
in town.
By providing her customers freedom from immediate payment demands Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer - the most consumed beverages.
Consequently, Helga's gross sales volumes and paper profits increase massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Helga's borrowing limit. He sees no reason for any undue concern, since he has the
debts of the unemployed alcoholics as collateral.
He is rewarded with a six figure bonus.
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These "securities" are then bundled and traded on international securities markets.
Naive investors don't really understand that the securities being sold to them as "AA Secured Bonds" are really debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
The traders all receive a six figure bonus.
One day, even though the bond prices are still climbing,a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Helga's bar. He so informs Helga. Helga then demands payment from her alcoholic patrons but, being unemployed alcoholics, they cannot pay back their drinking debts.Since Helga cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and Helga's 11 employees lose their jobs.
Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Helga's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy,
closing the doors on a family business that had endured for three generations; her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and
bailed out by a multibillion dollar no-strings attached cash infusion from the government.
They all receive a six figure bonus.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who've never been in Helga's bar.
Acknowledgement is due to James Lawson of Intralink for the above wise words on our the root casues of the present troubles in our financial systems
Recent Comments