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AN INSIDE JOB

AN INSIDE JOB

 It can leave a bad taste when an employee commits fraud, but it must be dealt with, writes Adam Bernstein.

It’s bad enough losing out to theft committed by customers and third-party criminals, but it can leave a particularly nasty taste in the mouth when those most trusted – staff – commit criminal acts against the business that employs them.

According to Action Fraud, one in five small businesses will have been defrauded at some point in their trading history – sometimes to the point of bringing the business to its knees.

In March 2010, The Journal reported that a 21-year-old garage – Knights of Newcastle – was put out of business after a trusted employee, Colin Prudham, used the company computer to print off 419 fake MOT test certificates. The fraud only earned Prudham £12,500. In February 2011, a former employee in the accounts department was convicted for stealing over £50,000 from Lanehouse Service Station in Weymouth over a six-year period. The managing director, Peter Amery, described Joyce Britnell’s actions as a “major betrayal.”

And in February 2013, a bookkeeper stole £210,000 from a family business involved in motorcycle publishing run by her friends. Amanda Stevens took the money for, among things, hair and clothes leaving the company – Redcat – to pick up the pieces. The fraud committed over a number of years was only discovered when the VAT couldn’t be paid.

TAKING ACTION
While fraud is an ever-present risk, and a destructive one at that, employers can take preventative measures.

Background
The first step is to proactively check on everyone that is employed by the business, especially where they have access to sensitive systems or the company bank account. Quite simply, firms need to know exactly who they are employing. References should be sought and followed up with calls; the matter shouldn’t be dropped until satisfactory answers are received. Everyone from the cleaner to the members of the board, as well as contractors, should be subject to background checks. At the very minimum, it’s important to confirm an employee’s identity, date of birth, residential address, qualifications, employment history, criminal history and financial background. The process can be undertaken as part of the statutory obligation to ensure that an employee has the legal right to work in the UK.

Another option is to ask for a recent bank or utility statement, as well as details to check on qualifications, or a marriage certificate if a married woman has changed her name. You can also ask for past P45 or P60s, as well as data from Disclosure and Barring Service. Credit agency Experian offer background checks for those in the automotive sector to enable employers to check on, for example, qualifications and experience. At the same time, by signing up with one of the credit reference agencies – Experian, Equifax or Callcredit – employers will be able to monitor if employee (or third party) activity has changed the financial status of the business.

Policies
Another large step that a business can take to protect its position is to engender the ethos that fraud is not tolerated within the business. This starts at the top with everyone being able to see that the management plays by the same rules that employees have to follow. Policies and procedures need to be written, but they also need ‘buy-in’ from employees which requires consultation. On joining, every employee should be given, among things, an anti-fraud policy. If a fraud should occur and the employee concerned is dismissed, the event and the consequences should be widely communicated to all staff as a deterrent.

Control access
As harsh as it sounds, firms need to strictly control access to their premises and systems. As soon as an employee leaves the company their access to systems should be terminated immediately. Passwords should be changed, passes revoked and possession should be regained of company laptops and mobiles. (It doesn’t hurt to regularly change passwords held and used by all employees).

Take action
If a faked history or worse, criminality, is suspected, it’s important to take good legal advice with a view to with- drawing any employment offer made (or dismissing the employee). The situation should be reported to the police or, in the case of illegal working, to the UK Border Agency, as well as to the recruitment agency if appropriate. Ignoring the issue will only shuffle the problem to another employer; it could also leave the firm open to claims from future employers who weren’t warned about the ‘rogue’ employee.

Check further
Processes need to be put in place so that no one person has sole control over payment systems, chequebooks or the ability to singly authorise purchases over a given (low) value. Invoices should be checked to ensure that they are from genuine suppliers; unexpected requests to change bank accounts should verified – every time; and suppliers should be informed in writing each time a payment is made.

It’s important to also prevent premium rate and international numbers from being dialled out on company phones. Premium rate fraud – also known as PBX or dial-through fraud) involved out of hours calls being made to particularly expensive numbers. Similarly, phone logs should be regularly checked for increased use or unusual call activity.

Lastly, firms should take steps to destroy any documents with sensitive information that may allow a fraudster to misuse the corporate identity for criminal gain.

For paper, this means acquiring a fine cut cross shredder, while for data, firms should securely wipe computers (physically destroying hard drives and USB sticks) while factory resetting mobile devices. At the same time, time spent signing up on Companies House and other agencies websites seeking out their online protections is worthwhile. Companies House, for example, offers the PROOF scheme in relation to the changing of official corporate details; it helps prevent the hijacking of a company.

Fraud is an unpleasant fact of life. However, those firms that make it harder for employees who are criminally minded will be much better off. By removing the opportunity they’ll remove the temptation.

WHAT TO BE AWARE OF

There are countless different ways that an employee can abuse trust. However, the main forms that firms should be on the watch for are:
Procurement fraud: Fraud relating to company purchases of goods, services or works commissioned. Goods are invoiced but not delivered, or are subject to inflated prices.

Travel and subsistence fraud: Where employees claim for, say, food and mileage not incurred or which is higher than receipts can show.

Personnel management: Staff on sick leave but moonlighting elsewhere, misuse of company equipment and time for private purposes, or the use of false references and qualifications.

Exploitation of assets and information: The passing of internal company information for personal gain.

Payment fraud: The creation of fake accounts and invoices, the redirection of cheques and other payments, or the processing payments to the fraudulent individual.

Receipt fraud: The theft of inbound monies or where records for monies owed are altered.

False accounting: Changing records and accounts to misrepresent their true value, to enhance or alter their appearance, to gain funds from a bank, report overly high profits or to hide losses.

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RECON WITH RISK AND MANAGE YOUR PREMIUM

RECON WITH RISK AND MANAGE YOUR PREMIUM

Insurance premiums might seem like they only go one way but manage your risks and you could get a reduction.

Joe Howard
Aftermarket Lead Broker, Hugh J Boswell

Maximising efficiencies and controlling costs are the buzzwords of the aftermarket right now. You can add to that getting the right insurance policy is critical otherwise insurance costs can soon become unsustainable, or worse your policy fails to adequately cover any losses incurred in the event of a claim being made. A large number of the factors insurance companies review, such as those above, are essential to your business, thus limiting your ability to alter them for the same insurance premiums. So, what factors are there in your control?

CLAIMS FREQUENCY
It sounds obvious to say, but reduce your claims, and your premiums will be lower. The most effective way to manage your claims frequency is to develop a company culture that works towards eliminating or reducing incidents.

A motor factor’s van f leet is most likely to be affected by a high claims frequency. So, how are policy holders protecting themselves?

For example, if motor claims are an issue for your business, start there. Employing drivers who aren’t as careful driving your vehicles as they are driving their own can result in claims. One potential solution? Making them responsible for paying the excess in the event of an accident encourages them to be more circumspect in your vehicles. Plus, incentivising them with a bonus if they avoid any fault accidents after, say three years, can add additional positive motivation as well.

To lower your insurer’s exposure to risk and therefore lower your premiums, purchasing vehicles with modern safety kit such as autonomous emergency braking is another way to minimise road traffic incidents. Insurance companies are now starting to build these into their pricing.

Of course, claims can’t always be avoided, and damage limitation sometimes needs to apply. When it comes to motor accidents, capturing information at the time, including photographs, or/and dash cam footage can help avoid fraudulent claims and make for a speedier resolution. An essential, but often overlooked element in managing claims costs is the early notification of your claim to your broker or insurer. Amongst other benefits, this helps manage (often expensive) third party claims management costs.

The most significant aspect here is age. Drivers under 21 pose the largest risk and are looked at very unfavourably by insurance companies. With motor policies running at loss for many insurance companies, the market has seen further tightening, with under 25’s and any drivers with less than 2 years’ experience often in the firing line. Restricting drivers to specific types of vehicle use and driver training are just some of the ways you can help alleviate costs here.

KEEP SAFE
Away from the roads, other ‘claims hotspots’ in the aftermarket business often revolve around health and safety. So being thorough with plant and equipment maintenance can reduce the number of claims resulting from accidents. Equally, protecting your staff well (e.g. steel toe-capped boots) strengthens a health and safety culture that reduces accidents.

MISCONCEPTION
There is a misconception that insurance companies offer f lat rate discounts for some practices, products or behaviours, which in most cases is simply untrue. A typical example of this is the installation of vehicle trackers. However, don’t let that deter you. A good insurance broker should be using such information, along with their knowledge of your business, to present a portfolio of evidence to insurance companies that your business is a desirable risk.

In some higher risk areas, insurers may have minimum security requirements to cover your business premises, such as red care police response alarm. Generally though, the better security measures you have installed, the more discounts the insurer can apply. The same also applies to vehicles, but in addition to your postcode, insurers also look at the vehicle type and its attractiveness to thieves.

If you would like to discuss anything raised in this article, please contact Boswell Aftermarket on 01603 626155.

TYPES OF COVER

The product range required to protect a modern business is vast but typically, most aftermarket businesses will be protected by at least one, or maybe all of the following products:

  • Commercial combined;

Covering all the commercial elements of a business – from employers,public and product liability,to buildings and stock,as well as business interruption,loss of revenue, etc.

  • Motorfleet;

Insuring your vehicles.

  • Motortrade; effectively garages, covering mechanics in customers’ vehicles, property, defective workmanship, accidents, etc.

When an insurer is calculating the weight of risk your business carries, there is a multitude of factors they consider, including;

  • Location (likelihood of theft and flood)
  • Value of stock and tools
  • Number&value of your vehicles
  • Property rebuild value Business function,e.gtrading in safety critical parts will carry higher premiums than car accessory retail.

If you would like to discuss anything raised in this article, please contact Boswell Aftermarket on 01603 626155.

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KNOW YOUR LIMITS: SET AN ALCOHOL POLICY

KNOW YOUR LIMITS: SET AN ALCOHOL POLICY

What is the best policy for booze in the workplace?

Sensible policies for alcohol at work are encouraged

Do you have a policy on alcohol in the workplace? If you don’t then you are hardly unusual as most British companies either don’t have anything written at all, or they swing the other way and have an absolute zero-tolerance policy… which may or may not be enforced.

However, you should have a policy in place and have the means to enforce it. As the trend for fines for corporate manslaughter and injury continues to significantly increase across the UK, the emphasis on employers to operate strong and effective health and safety policies and practices has never been more vital.

KNOW THE LAW
Aside from drugs and alcohol costing British businesses in excess of £6 billion per year in lost productivity, under the Transport and Works Act 1992 it is a criminal offence for any worker to be unfit to operate due to drink or drugs and employers must show due diligence to prevent such offences from occurring in the workplace.
Laws that relate to drink- driving are of special interest to motor factors or any other business that has a van fleet. Don’t forget that limits vary within the UK with England, Wales and Northern Ireland having the highest permitted limit of 35 micrograms per 100ml of breath, compared to Scotland’s reduced limit of 22 micrograms, which is in line with the majority of the rest of Western Europe.

BEST PRACTICE
Of course, these limits are perhaps moot if your company has an absolute zero policy on alcohol. However, such a policy might not actually be the best plan. Suzannah Robin, a Director at breathalyzer maker AlcoDigital said: “One of the first steps in setting best practice policy is deciding a company alcohol limit. There will be many factors determining what this should be and it will very much depend on your business operations, however, we would always recommend that an employer sets the limit below the current legal drink-driving limit rather than at a dead zero”.

“Whilst zero may sound like a target every business should be aiming for, it can also cause issues where there may be discrepancies in results, caused by things such as liquor in chocolates or alcohol in medicines. Instead, using a scale of differing limits to determine the next steps an employer should instigate in the event of a positive alcohol test will provide staff with a clear set of rules and help to avoid any unjustified gross misconduct disciplinaries” she added.

EVIDENCE
If a company intends to screen staff on a regular basis it can use a Home Office approved breathalyzer. However, should a screening test reveal a positive result, a company will be obliged to re-test the employee.

Of course it isn’t just about the type of equipment being used, but also how the procedure is carried out and followed through. This means making sure staff implementing alcohol workplace policy have the sufficient training to perform such tests fairly and effectively. Robin explained: “If an employer does not follow best practice policy this can cause issues further down the line, particularly if an employee has tested positive for alcohol. Therefore, professional and reliable training is absolutely crucial for those being assigned to implement alcohol testing policies in the workplace.”

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DRIVING CHANGE: HOW COMPLACENCY CAN KILL

DRIVING CHANGE: HOW COMPLACENCY CAN KILL

Driving for work is a ‘work activity’ like any other. However, our familiarity and, in some cases complacency, with the activity can make it difficult to manage despite it being one of the greatest risks we face. With the trade running fleets of delivery vehicles, the issue of road safety should be high up on the agenda. Indeed, it’s not hard to find web-hits such as ‘Van driver hurt in crash’ or ‘Truck, lorry and van driver injury compensation claims’.

THE LAW
There is a raft of criminal offences that capture individual drivers who decide to break the law. These include death by dangerous driving, careless driving and driving without a valid licence or insurance. The law recognises that properly licensed drivers have a personal obligation to take care of themselves and others on the road.

However, organisations, managers and colleagues could also be implicated if they are considered to have “aided and abetted” that criminal behaviour. A potential example of this would be where a manager
knew that a driver’s insurance had expired but did not alert anyone within the business or prevent that individual from driving. Organisations often collect vast swathes of information that are relevant to managing driving, but are not used as such. Working time details, health information and job descriptions are all good examples.

Prosecutions for ‘aiding and abetting’ offences remain rare, but a fatal road death may result in a Coroner’s Inquest and the organisation having to answer some difficult and probing questions on behalf of the deceased’s family.

Within the more typical health and safety arena, prosecutions could arise where the culture of the organisation is such that driving for work is not managed properly and individuals are put at risk.

In fatal incidents, under the Corporate Manslaughter and Corporate Homicide Act 2007, an organisation can be held liable if “working regimes, dangerous or illegal practices or negligence have contributed to the death”. The police will investigate for the offence of corporate manslaughter and will want to establish the attitude of senior management towards managing driving for work. Were policies in place and enforced, and was there real and visible leadership from the top?

Further, the Health and Safety at WorkAct 1974 states that organisations have a duty to ensure, so far as is reasonably practicable, the health and safety of all employees while at work, and that others are not put at risk by work-related driving activities.

Beyond the broad 1974 Act there are various other health and safety regulations that apply to work activities such as driving. The key action point is to appreciate driving for work as a work activity and treat it as you would any other, providing suitable instructions, information and equipment based on a sound risk assessment process.

CONSEQUENCES
The most obvious consequence of getting it wrong is that an employee or members of the public is seriously injured or killed as a result of your organisation’s driving activities. Organisations recognise the moral reasons for keeping people safe.

In addition, there is the risk of a subsequent prosecution for individual criminal offences or for organisational or management failures.

The potential consequences of getting health and safety management wrong have become all the more severe since February 1 2016, which saw the introduction of a Sentencing Guideline for health and safety offences and corporate manslaughter (among others) and creates the potential for higher fines and prison sentences than we have seen historically. The guideline uses ‘potential harm’ as one of the determinants when deciding upon a sentence; the potential harm associated with driving is obvious.

In addition to a criminal prosecution, you may have to deal with any civil claims brought against the business by individuals who have been involved in an incident. Insurance may be in place for organisations and those that use company cars, but what about those who use their own vehicles? Everyone ‘driving for work’ needs to have ‘business use’ insurance. Without it, insurance policies can be revoked and the individual or organisation is left to pay.

Aside from financial implications, incidents and prosecutions can attract significant negative publicity, which in turn could affect an organisation’s brand and reputation. Many vehicles now bear corporate logos and branding which can have unwanted consequences in the event of a serious incident. The impact of an investigation can also create significant business interruption, with the seizure of vehicles, computers and other records, even if a prosecution does not result.

Driving for work can be a risky business and should be taken seriously by the whole organisation; not just the driver.

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TIME IS AN ENEMY WHEN YOU ARE HIRING STAFF

TIME IS AN ENEMY WHEN YOU ARE HIRING STAFF

Don’t let the clock tick down when you need to fill a sales role

Let’s talk about time. If recruiting for a role yourself, you will spend countless hours sifting through applications and initial screenings.

At its most simple, using a recruiter will save you time and to use an example, time is critical when filling vacant sales roles. If the territory is vacant it means that another employee or even the hiring manager is covering the area and this could result in a loss in revenue as customers are not getting the right amount of contact. Another implication, people are human and if someone is covering two roles rather than just their own, it will cause issues. Trust me, I’ve been there!

People will talk sometimes to a recruiter rather than apply direct as it offers them in some cases some anonymity, also the roles I work on are not out there plastered across the job boards for all to see. Using a recruiter cuts out the headache of marketing the role, finding candidates and organising meetings. My ‘specialism’ (a horrible term) is in the body refinish market, but the same rules apply across the aftermarket and elsewhere.

But what if the boot is on the other foot and you are a candidate?. Why would you consider going to a recruiter instead of approaching the firms that interest you directly? Ideally, any good recruitment agency should act as the ‘compère’, between you as a candidate and a potential employer. Putting the right people in front of the right employer is a skill, encountering a large number of variables along the way. Yes, the skills must be right to do the role however much more is involved. There aremany more elements which come together to make the perfect candidate including personalities need to match with company culture and ethics. A good recruiter will understand the needs to match all aspects, the candidate must be right for the business in the same breath as the client being right for the candidate ensuring longevity for both client and candidate alike. Believe me this is no easy task.

Recruiters (well the good ones), have a network of hiring managers, business influencers and decision makers in multiple businesses. Something that as a candidate you in all likelihood don’t have, or not to the extent of an agent. All of these things go back to the issue of making the most of the limited time available – don’t waste yours.

TOP CANDIDATES MOVE QUICKLY

Research shows that from the start of the hiring process the top 10 percent of candidates have disappeared from the market in the first two working weeks. So, considering the average time to hire in the UK is approximately 28 days, the candidates remaining in your process from working day 11 onward are unlikely to be the right fit or the most qualified for your role. However, some companies will attempt to make a ‘good fit’ from the limited candidates now available and in effect taking on someone who doesn’t entirely fit the role because they need it filled and the slow process has cost them the best candidates.

In addition to this, a long hiring process is often the top reason candidates speak negatively about a brand or company. Candidates are now researching online reviews from former candidates or employees in the same way that they would from (say) Trip Advisor, when looking at holiday destinations. The result of this is that it can add 10 percent to the cost of every hire.

Remember the hiring process clock starts ticking as soon as that candidate submits the application not when you review it or when they sit in front of you at interview. By then the damage could have been done and your ideal candidate could have slipped through your fingers! So how long is your hiring process? Do you need to make changes?
Gavin Collier

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A NEW DEBT COLLECTION PROCESS

A NEW DEBT COLLECTION PROCESS

Changing rules mean more hassle in getting your hands on money owed

A customer will not pay their bill. Despite your requests followed by demands, you find yourself in a position where you’re getting nowhere and the debt remains outstanding. Your thoughts turn to the law, but what steps do you need to take before you can “see them in court?” Well, as it turns out, more than you may have thought.

Business creditors dealing with a debt claim involving an individual, as opposed to a business, currently have to follow a simple set of rules. However, from 1 October 2017, the new Debt Claims Protocol will apply and businesses will need to ensure that they have complied with it when trying to collect debts owed. The Protocol will be used alongside any other regulatory regime to which the creditor may also be subject.

Sarah Carlton, an associate at Fox Williams LLP, says it’s important to note that the new rules only applies to businesses (including sole traders) claiming payment of a debt from an individual which also includes someone in business as a ‘sole trader’ – “the Debt Claims Protocol will not apply to debts from a business owed to another business (except where a sole trader is involved), and nor will it apply to claims issued by HMRC.”

REGIMES
The current position for debt claims is that a business creditor, or its legal adviser, will issue a Letter Before Claim to the debtor, in order to give them a chance for the matter to be settled before court proceedings. The new rules seek to formalise the process even before a Letter Before Claim is issued. Carlton says that in practice, “this will likely mean more work will need to be undertaken before even a simple debt claim is issued, the intention being that the parties try to settle the matter without the need for court proceedings while protecting debtors facing prospective legal proceedings from creditors.” Where a firm, or its legal adviser, intends to send a Letter Before Claim over an unpaid debt, the Debt Claims Protocol aims to encourage early communication between the creditor and debtor without having to involve court proceedings.

In terms of process, the debtor will have 30 days to respond to the Letter Before Claim once it’s been sent. If the debtor fails to pay the claimed debt, another letter must be issued from the creditor giving a further 14 days for them to respond, and in theory the person with the debt should use a new special form.

Carlton sums up the thrust of the process: “Creditors should seek to take ‘pro-active’ steps to engage with debtors whatever their response to a Letter Before Claim, even if the Reply Form has only been partially completed”. She adds: “The creditor should make attempts to contact the debtor and obtain any further information that is required to appreciate the position of the debtor.”

Of course, the parties may not be able to reach an agreement or resolve the debt repayment, in which case both should take steps to resolve the dispute without starting court proceedings. Here Carlton says that they should consider other forms of Alternative Dispute Resolution (ADR), for example ‘a without prejudice meeting’ or mediation. “Again,” she explains, “the obligation remains on creditors to consider the cost against the benefits when deciding whether to proceed with ADR – it may be the case that the amount of debt claimed does not justify such a process.”

Unfortunately, if the parties do reach an agreement and the debtor later defaults, the whole process must be restarted and a new Letter Before Claim will need to be sent to the debtor.

Carlton says that only time will tell whether individuals will use the new rules to frustrate collection actions against creditors, and whether the front-loading of costs onto the creditor pre-hearing may prevent creditors from pursuing all of their debt actions – “creditors who regularly have claim money from individual debtors will have to consider whether the preparation work now required makes the claim worth pursuing” she concludes.

The new Debt Claims Protocol process

The Debt Claims Protocol requires that a standardised Letter Before Claim be sent to a debtor and that it contains particular information:

  • The amount of the debt, any interest and/or other charges claimed by the creditor
  • The date of the agreement following which the money is owed and the parties to it (whether made by written or oral agreement)
  • Where the debt has been transferred to a different creditor (i.e. ‘assigned’) details of the original debt and creditor and details of the assignment
  • If the debtor has offered to pay, an explanation of why the offer or payments from the debtor are not acceptable to the creditor and why a court claim is still being considered
  • Details of how the debt can be paid and details of how to proceed if the debtor wishes to discuss payment options with the creditor
  • An up to date Statement of Account for the debt (including charges and interest claimed), an Information Sheet, a Reply Form and a Financial Statement Form (as annexed to the Debt Claims Protocol)
  • The address to which the Reply Form should be sent

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A POINT OF GARAGE DIFFERENCE

A POINT OF GARAGE DIFFERENCE

Sometimes it’s good to take a bit of time out to think through why a customer should choose you, as opposed to any other garage in the area.

Thinking about your business from your customers’ perspective is an exercise worth taking. After all, we can be so immersed in what we do that we lose track and take things for granted.

Personally, I think I can safely vouch for your typical customer and tell you that most find it very difficult to differentiate between one garage and another. Many independent garages unfortunately do appear the same. They all say they do brakes, clutches, servicing; some offer air conditioning services and other’s MOTs, but there never seems to be a lot of difference between them.

This makes it very difficult for customers to make informed decisions on which garage to use. They have very little to go by. They may have driven past your premises, seen your signage, again reiterating that you do what everyone else does.

Some premises will be big and others small; in these cases, price will probably go through the customer’s mind, big = expensive (but perhaps they have more capabilities); small = cheaper (but can they work on new cars?).

LOYALTY
This could be a reason why some customers don’t stay loyal and change garages from year to year. Or, worse still, you lose out on a major repair because the customer wasn’t aware that you could do it and went elsewhere.

Very often customers are left to read the ‘signals’ that independent garages put out and to decipher for themselves who to use.

But this means for those who do reach out to their customers, who are prepared to communicate and engage with them, there are great opportunities to win them over. Customers do need more information to help them with their decisions. It’s not all about price and where you are.

To the majority, the mechanics of cars are a mystery. Most never lift their bonnet from year-to-year and as technology rapidly advances, people understand less and less. This only increases their difficulty with decisions. Who is really up to the job – can that small garage down the road really handle my particular car?

DIFFERENCE
So how can you make yourself more appealing to customers? You need to differentiate yourself from the crowd. You need to help customers with their decision making so they gravitate to you.

In an industry where this is rarely done (outside of the dealerships), there are opportunities for those prepared to put in the effort. And this is what marketing is about – it’s not necessarily about hard-sell offers and saying how great you are. It’s about helping customers, informing them and going that extra mile. It does take time and effort but it can pay off.

If you take a leaf out of other industries it might help you understand what I mean by ‘differentiation’. Take the airlines; you’ve got Easyjet, Virgin and British Airways, all fly planes and take passengers fromAtoB–butallare distinctly different and spend a lot of money communicating how different they are and evolving services to back this up. Customers know pretty much what to expect.

Then there’s the supermarkets, who do you choose Waitrose or Lidl? Extreme cases I know, but with one you know the products have been chosen with a more discerning approach, plus you can pick up a nice lifestyle magazine with hints, tips and interesting stories. Whereas the other has a more, no frills, pile ‘em high, sell ‘em cheap approach – both are clearly different.

It has been said that those that are too ‘middle-ground’ or too general are the businesses that are struggling. You’ve only got to look at some big high street names that have gone to the wall. In most cases, it was because they lost their way and,
in the eyes of the customer, weren’t different enough.

So how can you differentiate your garage? As I’ve already said, in most towns there are great opportunities for those who are just bothered to communicate; to actually do something like sending out regular mailings. This is because most don’t do anything.

But the key here is ‘communicating’, after all, it’s no good being good at something, or offering something different if you don’t tell anyone.

For those bookish types out there, I recommend reading any book by Jack Trout the author of ‘Repositioning’ (an updated version of his earlier book ‘Positioning: The battle for your mind’, or ‘Differentiate or Die’. These books will give you greater insight into differentiation techniques.

MAKING A DIFFERENCE

  • Becoming the local expert
  • Offering guarantees
  • Providing a unique approach to serving customers
  • Specialising in types of vehicles
  • Providing more customer endorsements
  • Providing additional products and services that others don’t n Doing charitable work
  • A long track record or unique story

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ACQUISITIONS NEED PLANNING

ACQUISITIONS NEED PLANNING

Takeovers are in fashion in the aftermarket, but you need to find a company that’s the right fit, writes Adam Bernstein

The question of how to grow a business is one that has perplexed many for generations, namely: organic growth or acquisitive growth? It makes no odds which route is taken, the end goal is the same – greater profitability.

Acquisitions seem to be in vogue for the aftermarket at the moment. You’ve probably already read in this issue that Canadian parts giant Uni-Select has acquired The Parts Alliance, which has itself been on the lookout for smaller factors to buy. GroupAuto’s parent company AAG has made numerous acquisitions in the past year, including FPS and LKQ’s attempted tie-up between ECP and Andrew Page has attracted the attention of the Competitions and Market’s Authority, for which we await the decision in November.

There’s nothing wrong with organic growth, it’s just that it takes time. And compared to setting up a new unit from scratch acquisition takes less time, resources and finance that many firms struggle to provide. So how should firms acquire? What are the issues to be aware of?

DUE DILIGENCE
Understanding what is being bought is key. Although acquirers will usually be able to obtain warranties (think guarantees) from shareholders, there is no substitute for extensively checking the detail of the transaction through “due diligence.” The process falls into three distinct areas – legal which will be handled by lawyers; financial and tax which will be dealt with by accountants; and commercial which falls to the acquirer. If any skeletons in the cupboard are identified, these can be turned into indemnities and, as such, the risk stays with the vendors.

But while due diligence is important, desktop research should be completed before any approach is made along with market and commercial due diligence. Research is much easier nowadays as so much information is available in the public domain through Companies House, online databases, the web, and other information gained discreetly through industry sources. But remember, financial information can be months out of date and cannot be relied upon to give an accurate view of a firm’s financial health.

Skimping here will mean the acquirer will have no idea about the veracity of what they are being told.

WORKPLACE CULTURE CLASH
Acquirers need to recognise that buying the assets of a firm is one thing, but businesses also come with staff already employed and they must get along with the acquirer’s own employees. There are countless examples where mergers and acquisitions have failed because of culture clash – Daimler and Chrysler, AOL and Time Warner, HP and Compaq.

Culture is something that should be looked at closely; compatibility is one of the key requirements. Inevitably there is a learning curve following acquisition, but many find that due diligence meetings usually indicate if the businesses can adapt. Others suggest looking at the top to board level for clues on possible culture issues.

TAKING PRECAUTIONS
Of course, some businesses are bought when they are in trouble and here the purchaser should be particularly cautious.

Firms in trouble often find themselves the target of creditors who can apply pressure; this must be considered when arriving at a valuation.

A question to ask is what is the reason for the decline? Is it the loss of a major client or a bad debt? Is the firm out of step with the market and unable to compete? Can the decline be reversed? Some buyers choose to wait until the target goes into a formal insolvency process before making an offer to the administrator or liquidator when the price the target can be acquired at should be considerably lower. But there is a warning – there will be no warranties and the acquisition will be on a ‘buyer beware basis’. Buying a business from an administrator is risky; their job is not to help the buyer but to realise the greatest possible value for the creditors.

It’s important to also look out for Crown debt arrears such as PAYE and VAT. If these exist a time to pay arrangement is crucial if a rescue is to be completed. But buying a failed firm may mean that existing customers may lack confidence in the business. Similarly, creditors who would have suffered due to the business failure – will be wary too.

ACQUISITION COST
Acquisitions involve significant costs and many are not insignificant. Purchasers should budget for the corporate finance finder’s fee, accountant’s costs, legal fees (legal drafting, due diligence and deal completion matters), insurance warranty payments and costs allied with any associated funding. These can be over 10% of the purchase price.

Also, buyers should not ignore property and any stamp duty that is payable. And just as importantly is the hidden cost of the Transfer of Undertakings (Protection of Employment) Regulations 2006 – TUPE – which crystallises if there is a staff restructure following the takeover. Employees involved in a business acquisition can sometimes have a significant level of protection under TUPE – which in practice means that dismissing employees following an acquisition can be restricted or costly. Acquirers also need to consider any changes that have to be made to accommodate staff with disability issues.

There’s also the threat of loss of business due to change of control, changing relationships and the possible loss of key staff following the takeover. But these can be managed by having close liaison with customers and offering staff revised employment contracts that come with incentives. Further, existing contracts and arrangements will need to be honoured once the former management leaves.

But there is one more expense that is harder to quantify – time. It is important to make sure that the acquisition doesn’t become a huge distraction and the underlying business is not neglected.

BOLD MOVE
An acquisition is not for the faint hearted – acquirers should consider if they are better off focusing energy on organic growth or proceed ahead by taking a larger risk with an acquisition.

The adage that “people buy people” applies to staff as much as it does to the seller and customer relationship. Ignoring and potential staffing and culture issue can do more damage than any over-valuation.

NOTABLE AFTERMARKET ACQUISITIONS

  • There have been thousands of takeovers in our sector over the years. Here are a few that sprung to mind:
  • Lookers PLC took the decision to sell FPS Distribution, BTN Turbo and Apec Braking to Alliance Automotive Group (AAG) in 2016.
  • American recycled parts firm LKQ Corporation acquired Euro Car Parts in 2011 after months of rumour and speculation around the aftermarket (much of it incorrect). More recently, LKQ has acquired Arleigh International, a large distributor of touring and leisure products.
  • In 1973 Burmah Oil acquired Quinton Hazell ltd from the man of the same name. Hazell didn’t take to working as part of a large corporation and took a stake in the Supra Group, where he started competing against his former company.
  • ZF and TRW came together in 2016, though Helmut Ernst, CEO of ZF was keen to stress to CAT that TRW as a brand was ‘an asset that would remain’.
  • Cash and carry chain Maccess was sold in 1999 in an MBO valued at £68m. It was a rare example of then-parent Finelist selling a company for profit. Finelist Group collapsed in 2001 while Maccess lasted until 2015 before it ran out of ‘time and customers’ according to the then owner Tetrosyl.

Posted in CAT Know-How, Factor & Supplier News, Garage News, News, Retailer NewsComments (0)

COULD YOU ENTER A FRANCHISE?

COULD YOU ENTER A FRANCHISE?

‘Franchise’ is almost a dirty word in the aftermarket, but is there an opportunity that is being missed here? Mike Owen suggests not

Franchises come in all shapes and sizes from McDonalds to mopeds, a plethora of VMs and then the smaller offerings which, frankly, are little more than pyramid selling in disguise.

The first rule, and like Monty Pythons ‘Bruce’s sketch’ every other rule thereafter is check your chosen franchisor – it is not unknown for these companies to go down the tubes and, as with Rover, take many well-established franchisees with them to ‘Carey Street’ or at least leave you holding the baby.

Now, a good franchise relationship does two things, it gives an income stream to the franchisee and incremental sales to the franchisor – a relationship is born!

As with any relationship they need nurturing, can go wrong and often have a dominant partner.

There are two basic reasons for considering a franchise. The first is for volume; a recognised name that will bring customers to your door, the second, surprisingly, is business discipline – training and business systems aimed at making the franchisee more professional.

In our industry when we talk about ‘franchises’ the first thing to spring into anyone’s mind is a vehicle franchise and that involves crossing over to the dark side! Firstly, and contrary to opinion, are not generally available – it is well known that the old ‘territory’ system was overturned by the European Commission only to be reincarnated under ‘Areas of Influence’ which are not quite as rigid but come a pretty close second!

You will note that the old ‘family’ garage business has all but disappeared in favour of the ‘groups’ or Plc’s – this offers comfort to the franchisee that the company is correctly funded and under proper financial control – they are fed up with getting burned.

OPEN POINT
Now suppose you have the premises in the right area and it is an ‘open-point’ for a franchise worth having, you are prepared to build from the floor to meet the draconian ‘corporate identity’ standards and, having spent a couple of million and still have a few more millions to go, let’s talk turkey.

As you stand on the edge of the world and prepare to leap into the abyss of becoming a Dealer consider the Faustian degree of your decision – just how far are you getting into bed with the devil?

Before the ink is dry on the contract your life will change – do not expect to operate a franchise for profit; your life will become entirely dependent on ‘standards bonuses’. Back in the good-old days when you could expect 18-20% discount on your cars and up to 50% on parts, now you may squeak 5% on vehicles and 18-20% on parts – the problem is you will be expected to give it all away. Your purchase margin will be passed on to your customers.

Standards bonus cover all things from vehicle sales volumes to customer satisfaction indexes and from parts penetration to finance penetration – the number of cars you sell using the franchises finance offerings. Compulsory training will be charged for and your warranty account will be watched like a hawk. You will input your business information to be measured as part of the ‘Inter Firm Comparison’ and you will receive your data back compared with national, local, size related and upper quartile businesses across the country. Your franchise representatives, be they Sales, Aftersales or Business, will be in and out of your business like a fiddler’s elbow and your life will belong to them.

BONUS
But return to these standards bonuses – you will be told what they could (or should) be but at each inspection you will receive de-merits; how much they will be reduced by, this creates a very threatening relationship. The top brick on the chimney for the franchisors, in this case the manufacturers, book of measurements, has to be volume! I get this, they are dependent on volume of manufacture and long gone as are Red-Robo and the fields full of new vehicles covered in brambles of the 70s and 80s. For the franchisee – you, you will quickly find that operating on a zero-profit basis on the promise of standards bonus to turn your empire into a success you will do anything to hit volume; this is where self-registered vehicles come into your life.

Self-registration is where you take stock vehicles and register them just to hit bonus. The consequence is that you now have a registered new vehicle that is immediately depreciated and going steadily down each month – now trading for nothing becomes trading for a loss. Experience dictates that a phone call will happen at 16:00 on the last day of the month informing you to register 50 units! But, you shout, they’re not allowed to self- register; suffice it to say, there are ways and means…

Dealer management is not for the feint-hearted, more those with a degree in self-deception but please don’t think it can’t be done; it can and is. The art is in never stop negotiating with your franchise, never accept you’re on the best terms, deals are done all over and you’ll need to be cautious!

So there you are, and all that just to have a new car five or six times a year and be taxed on it by HMRC – are you mad?

Posted in CAT Know-How, Factor & Supplier News, Garage News, News, Retailer NewsComments (0)

SPREADING KNOWLEDGE ABOUT SUSPENSION

SPREADING KNOWLEDGE ABOUT SUSPENSION

Is training garages partly the responsibility of the supplier?

TADIS training platform

As vehicles get ever more complex, do parts suppliers and factors have a responsibility to train garages about the systems that use parts that they sell?

Brian Sanders, Buisness Support Manager at Tenneco says that they do. “We do indeed encourage training throughout the industry, and since its launch in 2007 Tenneco has actually delivered education to 360,000 trainees. Our trainings actively cover technical aspects of our products in both the Ride Performance and Clean Air categories as well as providing soft skills such as sales and negotiation, presentation and communication skills”.

Taking a slightly different angle, Yvette Koehorst from air suspension maker Arnott Europe says: “Arnott believes it’s shared responsibility. We actively try to educate the garage owners and mechanics, especially because replacing air suspension is seen as ‘complicated’ which is not the case” she says. “Anyone that can replace a normal shock absorber can replace air suspension. For example, we have created a ‘tips and trick’ and a ‘most common made mistakes’ sheet which we will also be distributing at Automechanika Birmingham as well”.

VALUABLE INFO
Kevin Price, a Manager at ZF Aftermarket is of the belief that manufacturers cannot provide enough information to garages. “We have long advocated making our technical information freely available to the garages” he says. “If we and other OE quality manufacturers don’t do this, then eventually the IAM business model will collapse. Contradicting the ethos of block exemption, this would limit customer choice and force drivers towards the more expensive main dealer – whether they wanted to or not; as they would be the only ones with the ability and the money to cater for the new and emerging technological system environments in which the components operate.”

“Suppliers must also play their part in ensuring that the manufacturer messages and available resources are passed on in an unbiased way to the garages,” Price adds. “Their business model is such that they have the biggest access to the garages and the means to inf luence decision making”.

For all of this, Price believes that it will ultimately always be the garage owners who will decide how well their workforce are trained. “The garages should take advantage of the training available and embrace it as a vital investment in order to remain competitive and future proof their business” he says.”Of course, this can be difficult in terms of time off versus labour needed to complete the jobs won – and this is where online and remote training comes into its own”.

On that subject, Price’s firm offers a subscription-based workshop concept called ‘Pro Tech’. This allows garages who have joined the scheme access to a number of short courses and training modules. “The courses have a strong practical emphasis that complements the theory, and are continuously updated in line with ZF’s development in its chosen areas of driveline, chassis and steering” explains Price. “The course content ranges from assembly, repair and servicing of power steering units and clutches, to the trouble-shooting of 6HP and 8HP automatic transmissions and torque converters. The modules include the detailed specifics of popular passenger cars sold across the defined markets”.

Arnott’s Koehorst says that her firm has also put some training resources online. “For a growing number of products we also have installation videos where mechanics can literally see step-by-step how a replacement should be done. Most of our products are made as ‘plug & play’ solution so that with the guidance of the manual, any mechanic is able to replace the worn down air suspension part” she says. “Additionally they can always email or call us for technical assistance”.

Tenneco’s Sanders explains that his firm has put its training materials into an online portal, where customers can access all the content in one place. “It is called TADIS (Technicians Advanced Digital Information System) and you can find technical bulletins, fitting instructions, technical videos, and comprehensive product support and cataloguing in one place” he explains.

It seems that these technical resources are more than just added value as they offer useful advice for technicians, which should encourage repeat business and fewer non-faulty returns – plus of course, a nation of delighted motorists. Now isn’t that something we could all subscribe to?

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