Tag Archive | "Business"

LONDON ULEZ TROUBLES SMALL BUSINESSES

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LONDON ULEZ TROUBLES SMALL BUSINESSES


London’s Ultra Low Emission Zone will start in 2019 is troubling news for small businesses and specialist hauliers serving London, says the Freight Transport Association (FTA).

“We need to continue the improvement in London’s air quality which is happening anyway, but this regulation taking effect in 2019 will severely disadvantage small businesses working in the capital’s centre,” says Natalie Chapman, FTA’s Head of Policy for London and the South East. “The impact will be especially hard for van users, as by 2019 there will only be two and a half years’ worth of compliant vehicles in the fleet – and no second hand compliant vehicles available for purchase at all.”

It is now planned that the Zone will extend in 2020 to Greater London for HGVs and to Inner London for vans in 2021. Ms Chapman commented, “It is encouraging that this is not happening in 2019 as had been suggested: this shows the Mayor has listened to some of the concerns that had been raised. But the expansions of the Zone will still increase the burden on business exponentially. We are calling for businesses based in the affected area to have access to a sunset clause, such as has been offered to private residents, allowing them greater time to comply with the change required without the need for unnecessary and potentially crippling additional charges for new vehicles.

“Previously, the Mayor has called on the Government to fund a scrappage scheme aimed at owners of older diesel cars and vans: we fully support him in that call and believe it is the place of national Government to help prevent the cost burden to implement these measures falling on local authorities, businesses and residents. If such a scrappage scheme were created, it would give the Mayor the necessary room to introduce more flexibility to the London ULEZ, helping operators to avoid some of this unwieldy and unexpected burden on small businesses.

“At a time when London’s businesses face an increasingly challenging trading environment, the Mayor should be taking every possible step to help the capital’s small businesses, and we will urge through this consultation for more consideration to be given to those affected by the introduction of these new measures” concluded Chapman.

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CHOOSING THE BEST TIME TO EXPAND

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CHOOSING THE BEST TIME TO EXPAND


Going up in size can be daunting, but there are a number of options to be considered while doing it.

Mike Owen

Recently, we’ve been approached by several businesses looking to expand, most of them asking about what criteria to use to be in the best position post expansion/acquisition – the answer is simple, follow your entrepreneurial nose! The real question is, has your current business got enough strength to support such an acquisition?

All businesses follow a basic maxim and that is of generating a return on investment. If a company generates sales of a million pounds and a profit of £100K then this is a return of 10% – simple. If you look at that same company and say that the investment in premises, stock, working capital is £250k then the return on investment is 40%; the invested money has rotated four times and generated 10% each lap – ‘circulation of funds employed’ multiplied by ‘return on sales’ equals ‘return on investment’. This is not supposed to be a lesson in accountancy but a yard stick that can be used to evaluate a business’s readiness to expand.

Using the above company again and extrapolating the figures forward some strange things start to occur. The £100K profits this year, after dividends, tax and a myriad of other distributions, is reduced to perhaps £30K and this amount is held within the company then the investment is increased to £280K, circulation drops to (£1m / £280K = 3.6) and the return reduced to 36% and so on – all the time profits are replacing borrowed funds the investment remains the same; once the profits (or reserves) are building up inside the company then the investment increases – time to expand.

LEAN AND FAT
Rule number one – Fat companies become complacent! Lean companies fight for survival, stay alert to every opportunity and cost increases. In general terms the worst thing to have in a business is money; money should be invested in stock and ‘turned’ but overstocking is the ultimate in stupidity. Businesses that ‘take offers’ that exceed their immediate stock requirements can adversely affect the equilibrium of their returns.

Once a company becomes fat then it needs investment to keep the speed of circulation up and maintain the returns so here is a basic requirement that needs to be satisfied in considering further expansion. Another is the ‘gearing ratio’, the amount of borrowed funds to equity; equity equating to the company’s own funds. We look at this a little differently to most and believe that, particularly now, the ability to repay the interest on, together with the pay-down of the principal amount, of any borrowings is the ‘grail’ rather than the amount borrowed. We considered it good practice to keep repayments below 25% of cash profits – exceeding this may throw you under the bus if rates increase or the cost of stock goes stratospheric post-Brexit.

But of course business expansion looks good on paper – that’s why we do it; reality generally removes the rose-tinted glasses very quickly. Experience dictates that a business planning for expansion rarely gives consideration to the detriment that will happen to the existing business. Most accountants and finance directors will suggest that it brings ‘economies of scale’; basically, if you are taking over another company you will take out the acquired management in favour of current management overseeing both businesses, this rarely works. Surprisingly we often overlook the ‘involvement’ of management in day-to-day operation and how unavailability due to being ‘elsewhere’ will frustrate staff and customers alike.

The most important aspect of business expansion is policy transfer – ask yourself ‘how many times a day do staff ask me…?’ Each of these questions state, in big letter, there is no policy for this item so staff either ask you, don’t want to be held accountable (due to insufficient delegation) or are too lazy to take a decision; before you start expanding getting this right simplifies life post purchase. Instilling missing policies and procedures in the new business will tax your tolerances, putting it into two (or more) is the absolute stuff of nightmares.

DIRTY TALK
Now we must really talk dirty – Health and Safety! If your current business is not squeaky clean then it damn well should be! You owe every member of staff the right to be safe at work and return home alive. H&S does little more than this and whilst it would test the patience of a saint, it is a necessity – No business owner can abdicate responsibility by delegation even to an HR officer so, post purchase, you will have your head on two blocks. Two options present themselves; employ an external specialist company or get your own ‘Gestapo’ but have monthly meetings with them, minute the decisions and make it happen; the Health and Safety Executive, should they swoop, will expect these to be available together with actions taken.

We test readiness of companies both financially and structurally prior to undertaking their expansion programmes and it is an ongoing source of amazement at how much within some companies is left to assumption – assuming that staff know what is expected of them leading to incredulity when they don’t.

MODERN CURIOSITY

Now for the up-side. This is a good time to invest and to expand your business. The day of ‘the old curiosity shop’ business is over – this is the time of the professional; at every level. The days of holistic growth is gone, as is the premise of just opening a new depot in the hope that customers will come in just because you are there; it was former New York City Mayor, Rudy Giuliani, who stated “‘change’ is not a destination, just as ‘hope’ is not a strategy! Ensure that any intended change is not based on hope? Create a plan and test the it with as many ‘what ifs’ that you can imagine – one of them is bound to happen! Any expansion must then be measured against that plan and progress and performance religiously monitored; any shortfall or deviation is costing you money.

Acquisition is often the lesser evil as, whilst you will acquire some problems, you start with a going concern. Don’t miss out on performing your ‘due diligence’, don’t just delegate this to accountants; bean-counters can check the finances but you know about the business – use your expertise and be sure you are buying an asset rather than a liability.

Expansion is the land of the bold not the silly; of course you should look to grow but rather like buying at auction it’s no use asking those around you if you’ve done the right thing – if they thought it was right they’d have done it first! ‘Tener cojones’ and self belief is your starter pack everything else follows!

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WHERE EMPLOYERS GO WRONG

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WHERE EMPLOYERS GO WRONG


Human capital is more than just a resource, it is your strongest asset – so look after it writes Adam Bernstein

Employees are a firm’s greatest asset and they’re probably the most expensive too. So why is it that some employers and managers seem hell bent on treating their staff so poorly? Why do they create ‘them and us’ divisions without a care?

Having a unified and happy work force is critical to success. Employees can make or break an organisation. Staff don’t have to go the extra mile, they can upset a customer base, and they will leave for other opportunities taking both knowledge and customers
with them.

Any manager worth their salt knows that recruitment of replacements is both expensive and disruptive.

FIVE CAUSES FOR CONCERN
Lee Ashwood, a Senior Associate in the employment department of law firm Eversheds, reckons that there are a number of common causes of employee malcontent.

In his experience, and in no particular order, there are five key areas of concern.“The first”, says Ashwood, “is company sick pay being withheld in situations where the employer has a discretion over the payment.” From his point of view, those genuinely unwell consider the withholding of monies as an arbitrary penalty.

Next he sees real and sometimes bitter disputes over pay “in relation to hours worked, what constitutes overtime and, of course, simply not being paid enough in their opinion”. The issue at hand is that the web has made salary and pay more transparent and staff consider it their right to be paid the market rate. A number of cases on this have been brought and won by employees.

Thirdly, and this is a big problem for Ashwood, is inconsistency in treatment: “I’ve seen on many occasions situations where an employee feels that they are always given the worst tasks to complete, have not been allowed time off at short notice when others have in the past, or have not had the perks that others have been given in similar circumstances.”

Fourth on the list, and one that many can attest to, is an employee thinking that their workload is too much or that work has not been distributed evenly. This disparity is a real cause of employee stress that can lead to an employer either paying for employee sickness and lost production or finding themselves in a tribunal.

The last cause for concern for Ashwood fits under the heading of bullying by managers and colleagues. Indeed, a recent report by the arbitration service ACAS has found that workplace bullying may actually be on the rise, with ACAS receiving around 20,000 calls relating to bullying each year, more than ever before.thinkstockphotos-627390700

STAFF RETENTION
Points raised about staff retention are true in to all businesses, but it is perhaps factors that rely most on having bright and committed individuals on their teams. However, it is exactly because these people are both bright and an asset, that rival firms will try and poach them… and if the employee thinks they are getting a raw deal at their current employer they will move. Interestingly, research shows that this rarely has much to do with money – more often than not it is to do with how they perceive themselves to be valued by the company. Consider the number of Unipart Automotive employees who ‘defected’ to other companies well before the firm went bust in 2014. If employees think there is a lack of opportunity then there will likely be a high turnover rate.

STAFF APPRECIATION
So with the scene set, why do employers make mistakes? Do they misunderstand the law? Do they deliberately ignore the process? Or are they simply failing to appreciate the value and views of their staff?

With his lawyer’s hat on, Ashwood thinks that “making mistakes in not following what the law requires is understandable as it is often complex” and not well-known. “However,” he adds, “if you treat staff with empathy and respect, you rarely give them a reason to check to see if you are treating them in accordance with the law. It is not appreciating this point that leads to very common mistakes which in turn lead to disgruntled staff, grievances being raised or, worse, Employment Tribunal claims”.

CLAIMS ARE STILL BEING MADE
July 2013 saw the introduction of tribunal fees paid by claimants and although the number of claims has fallen from 50,000 in the first quarter of 2013 to just over 17,000 in the fourth quarter of 2015, an employee claim is not something that employers should welcome. Indeed, in a March 2015 report in the Daily Mail, The British Chambers of Commerce estimated (then) that the average cost to a business of defending itself at tribunal was £8,500 while the average cost of agreeing a settlement was £5,400.

BRING ME SOLUTIONS
The most obvious solution to counter discontent is for employers to take time to consider the impact of a decision on the employee in question; explain the reasons for the decision; and listen to any objection the employee may have about the decision. Following this course of action would make a number of employment lawyers very and distinctly unemployed.

Moving on, the better employer understands the importance of employee motivation, something that Richard Branson is well known for. In an April 2015 blog, How to keep your best staff, Branson underscores one of his key principles…that staff matter: “Making money or moving up the corporate ladder is no longer considered the be all and end all of career success. Today, one of the biggest indicators of success is purpose. And, in a world where purpose reigns supreme, it’s only natural for people to want to be heard and have their opinions valued.”

This logic is noted by Ashwood who understands that every staff member is likely to have different reasons and motivations for coming to work: “Just because you are solely focused on making your business as profitable as possible and would be prepared to work all hours to do this, does not mean others are or should be judged negatively because they are not. This means you should not take staff for granted and should try to tap into what motivates them in order to improve their performance.”

MOTIVATION
So let’s look at motivation. In simple terms, people work because they are either extrinsically or intrinsically motivated. The former is the poorer relation. In essence, it uses bribes to get staff to work harder – pay, holiday or some other reward. The problem is that the efficacy of an extrinsic motivator wanes given time and once the employee becomes disgruntled with the amount of tax charged to the ‘bribe’. Alternatively, and more preferable, is the pursuit of intrinsic motivation where staff do something because they want to do it. It’s the very reason why someone will willingly work through their lunch hour or will go beyond the call of duty to help a customer.

To be a successful manager that can instil intrinsic motivation within employees requires an ability to understand what an employee can do and also what they like to do. These goals can be matched in a number of ways.

Firstly, managers should help staff to develop themselves so that they maintain their market potential. Ignore this and they’ll leave for a firm that will. Next consider that staff now want a good work-life balance because after all, there’s no point being the richest man in the cemetery. Not everyone works for money – it’s the ‘eat to live’ rather than the ‘live to eat’ perspective.

Of course, businesses are not democracies, but nevertheless, staff like to feel that they have some level of input to decisions that affect them. The web has clearly exacerbated the importance of this point and firms that keep employees in the dark will eventually lose out to rumour and gossip.

Firms that don’t treat staff like automatons and who instead offer interesting tasks will keep employees more firmly engaged. It’s a sad function of modern life that people nowadays have shorter attention spans, something that can be squarely blamed on smartphones.

And lastly, staff bask in the glow of recognition for their efforts. Positive feedback and constructive criticism will do wonders for keeping an individual within a firm with velvet handcuffs.

To sum up the mantra for managers must be to look beyond the balance sheet and to those that are the backbone of the business. Get it right and employers will be on to a winner. Get it wrong and it’ll surely be the death knell of the firm.

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FOUR WAYS TO DRIVE SALES TECH ADOPTION


There’s a way to upgrade your systems without downgrading your profit

paul_black

Earlier this year, Matthias Muller – chief executive of Volkswagen – remarked that the automotive industry’s reluctance to embrace new tools could cause its status to be “downgraded to that of a hardware supplier.”

He’s both wrong and right. He’s wrong in that the automotive and aftermarket industries are making great strides in manufacturing technology: functions like fleet management, maintenance, and even driving itself may be fully or partially digitised within a few years. According to Business Insider magazine, it’s expected that connected cars will generate $8.1 billion in profit before 2020.

However, Muller is right when it comes to everyday business functions such as sales, marketing, and customer service, where technology is often shunned instead of embraced. In these areas and more, technology can make a significant difference, cushioning your company against the impact of an industry slump, and laying the foundations for a profitable future.

But it won’t do either if your company and its employees aren’t fully on board. Implementing new tools and applications will be vital in ensuring the company can evolve and remain competitive, but when your staff are used to doing things a certain way, it can be hard to persuade them to do them differently. Introducing these four technology adoption initiatives will go some way towards getting your staff on side. The aftermarket may be facing some difficult times: a study from Euler Holmes, the global credit trade insurer, forecast a nine percent downturn over 2017. Attitudes to technology will, for better or worse, impact future revenues, and a failure to adapt is unlikely to be sustainable or profitable in the short and long term. The more flexible, collaborative and encouraging you are with technology, the more your company will get out of it.

THE FOUR WAYS TO GET YOUR TEAM SELLING

1. Establish staff requirements across the business
At the very least, business tools and applications should be unobtrusive. At the very best, they should help your employees do their jobs more effectively, efficiently, and productively.

And if you’re going to roll out a new tool or application across several departments, it should be implemented with the needs of every potential user firmly in mind. Your sales team and customer service team will both need a level of access to, for example, a CRM system, but if you’re going to give one team full privileges and another limited privileges, you need to be able to explain your reasoning.

The best way to pre-empt any potential issues is to simply consult the relevant departments in advance of any rollout. Be prepared to justify the addition of this new technology, and to suggest ways that it might help them perform their job duties. Even better, get them involved in your decision-making process when looking into the available solutions.

2. Get staff up to speed
If the aftermarket is slightly technophobic, it has nothing on the wider sales profession. Entire books have been written about its reluctance to embrace new tools. They’re not alone in this: old habits and patterns are hard for anyone to break. The upshot of this is that you can’t just install a new application and say “good luck”: your staff needs the proper training.

It doesn’t matter whether you organise for this to be done in-house, or if you pay a third party to organise some semi-regular sessions. What matters is that your employees understand how to use it at the required level . If your salespeople are using the system to nurture new leads, if your account managers are using it to cross sell coil springs to customers who routinely buy driveshafts, and if your service team are using it to resolve problems, they’ll all need the proper guidance.

3. Be realistic
Technology isn’t a miracle cure-all. I can say for sure that selling in the aftermarket is part science, but the other part is pure art. A computer can’t get a tentative prospect over the line; it can’t keep a faltering customer relationship from sounding its death rattle; it won’t turn that one-off purchase of brake fluid into a recurring bulk order for engine parts.

Don’t sell tech adoption as a solution to your team’s problems. It’s there to help them focus on their problems with minimal distractions or intrusions and to remove boring admin such as data entry and meeting preparation. Tech adoption won’t let your team go on autopilot – it simply lets their skills do the talking.

4. Welcome feedback
Finally, tech adoption isn’t a one- and-done thing. Sometimes the software won’t perform as well as it should; sometimes it’ll evolve and iterate to the point where it’s unrecognisable; sometimes staff needs will simply change.

Listen to your team if they raise concerns, and when the software succeeds, show them. Let them know that, for all their gripes and difficulties, the technology is making a significant difference – even if it doesn’t feel significant as they’re using it.

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AUTUMN STATEMENT: AFTERMARKET REACTION

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AUTUMN STATEMENT: AFTERMARKET REACTION


There have been a number of statements issued by trade bodies and businesses across the motor industry, following the Chancellor’s Autumn Statement.

Fuel Price

A freeze in fuel duty was welcomed by most, including Charlie Elphicke MP for Dover and Chair of APPG for the Fair Fuel campaign. He said: “I’m delighted the Chancellor listened to the concerns of drivers up and down the land. He is absolutely right to put more money in the pockets of hard-pressed families and small businesses.”

Brian Madderson, Chair of the RMI’s Petrol Retail Assoc. also broadly welcomed the news. “In 2016 the freeze in duty boosted GDP by 0.57%, generated 112,000 new jobs and put £5.3bn back into hard working Brits consumer spending. It also bolstered tax revenues by 0.2%” he said.

“Trend volume sales in diesel have delivered a tax windfall to the Treasury of £1 billion and we will be looking to persuade the Chancellor to deliver an actual fuel duty cut in the Spring 2017 Budget”.

However, Madderson’s glee was not shared by TV presenter Quentin Willson who said: “I’m disappointed that the Chancellor didn’t instantly put money into everyone’s pockets by cutting duty. There’s an immediate benefit to the economy. I’m surprised too given the CEBR has said cutting duty by 3p wouldn’t change net tax receipts. This is a lost opportunity from a government still afraid of supporting drivers and roads”.

Infrastructure

The Chancellor pledged a significant amount for rebuilding the UK’s crumbling road network. This went down with most people, including contract hire firm LeasePlan’s MD Matt Dyer, who said: ““The vehicle rental and leasing industry contributes £24.9 billion a year to the UK economy and in 2015 the leasing industry accounted for half the number of new cars registered on the road. So this news will be especially pleasing for businesses, whose roads have suffered from poor organisation, congestion and pitted surfaces for decades. These roads are vital for the businesses that will power the country through years of lower-than-expected growth, so it is reassuring that the UK Government now views this as a priority.”

However, Dyer’s enthusiasm for infrastructure was tempered by a complex rule change regarding ‘salary sacrifice’, a mechanism where people can pay into a plan to lease a vehicle for work, a change that obviously affects the leasing sector.

SMMT also welcomed the infrastructure plans, but added a caveat. “SMMT welcomes the government’s commitment to improving infrastructure and investment in R&D, an area in which UK automotive punches above its weight” said Mike Hawes, Chief Exec of the Society. “We are, however, disappointed that the government has not done more on business rate reform. SMMT called for the removal of plant and machinery from business rates valuation, which would have helped encourage further investment at this time of great uncertainty”.

Motor Insurance

Jason Moseley of RMI Bodyshops was glad of plans to reform insurance claims, particularly those for whiplash. “We welcome the chancellor’s announcement to tackle the whiplash epidemic, and plan new reforms will crack down on minor, exaggerated and fraudulent claims” he said.

“The news means that millions of motorists could see their car insurance premiums cut by around £40 a year as a result”.

Whiplash claims have risen by 50% over the last decade, costing insurance companies about £1bn a year.

However, Ian Hughes, chief executive of Consumer Intelligence sounded a note of caution: “The first thing drivers should notice is a reduction in nuisance calls from predatory claims companies.  The need to produce medical evidence means that whiplash claims are no longer an easy and profitable for the “no win, no fee” market” he said.

“Drivers would also be wise to shop around to test whether their insurer is indeed lowering their premium in line with promises. There have been false dawns before. Insurers promised to pass on the savings when the LASPO (Legal Aid Sentencing and Punishment of Offenders) reforms came in three years ago. But when those reforms didn’t deliver the reduction in claims that insurers expected, rates rose again and are up 13.5% in a single year” he concluded.

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NTN-SNR ENTERS THE AFTERMARKET


Firm launch range of aftermarket parts

Firm launches range of aftermarket parts

Transmission product maker NTN-SNR has launched a number of products designed to capture a segment of the aftermarket.

Previously, the Japan and France-based firm has concentrated on OE contracts, but it has decided that the time is right to cater for a part of the market currently dominated by remanufactured products.

The company used an event in France to launch the new items ahead of last month’s  Automechanika. Initially the range will consist of a number of driveshafts and boot kits.

Christophe Espine, Marketing at the company said: “Innovation, whether it comes from OEM development or is specific to the aftermarket, is there to enhance our offer”.

The firm won the prize for product innovation for the compact design of it’s driveshafts during Equip Auto 2015.

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BUYING COMMERCIAL ASSETS


james_williams

James Williams is an associate in the Finance and Restructuring team at law firm Eversheds. Comment@haymarket.com

As a general rule, people will try to buy an asset such as a fork-lift truck or a four-post ramp for as low a price as they can while incurring as little risk as possible.

Unfortunately, a lower price usually corresponds with an increase in risk. However, when making a substantial outlay for non-real estate assets – say a vehicle or an item of plant – its quite common for the transaction to proceed without legal advice and with only the most basic due diligence exercise. As can be imagined, transactions involving second hand items are the most troublesome; buyers need to take precautions.

BASICS
It sounds obvious, but being clear what you intend to buy is important. Although not appropriate in all cases, there is no substitute for going to look at the asset(s) yourself at their present location. If possible, serial/model numbers should be recorded and incorporated into the sale contract. You should also note whether the assets are located on the seller’s own premises, or if they are held by a third party. If held by a third party, ask why?

Who are you buying from? Again, it sounds obvious, but it is quite common to see the wrong party recorded in the sale contract. Ask specifically, who/what owns the asset(s) in question. If there are several companies recorded at Companies House with a similar name (all part of the same group), make sure you address this point specifically. It’s common for company names to change overtime or for the trading business to switch from one entity to another, but for standard form sale contracts to remain in the name of the old (possibly dissolved) company. Don’t accept a contract in the name of “XYZ Limited” if the only names appearing at Companies House are “XYZ Trading Limited” and “XYZ Assets Limited” – insist on the proper name being entered in the contract along with the company number (which never changes).

Make it your business to know who the person you are speaking to in relation to the sale is and their job title/role at the seller. Does such a person have authority to bind the seller?

OWNER
It’s worth noting that English law recognises several types of ownership with each being given its own particular set of rights and position in a hierarchy of potential ownership claims.

The pinnacle of the ownership pyramid is the holder of legal title followed by other types of title, such as possessory title (assets in your possession). It is important to understand that while a seller may hold some title to the assets they are selling (such as possessory title) they may not hold the legal title, which may be claimed by a third party.

Extra care should be taken when considering purchasing assets which are commonly subject to hire purchase agreements. Consider a credit search as it may well reveal existing hire purchase agreements.

THIRD PARTY
By far the most common third party rights encountered will be in relation to a lender’s security or an attempt at retention of title by a seller further up in the supply chain.

Most buyers should be familiar, in relation to corporate sellers, with the process of conducting searches of a seller’s charges register at Companies House prior to making a major purchase. Such a search will reveal all registered charges over the seller’s assets, increasingly such searches will reveal the exact terms of the charge documents including the detail of fixed (over a given asset) and floating charges (over company assets as a whole). Advice needs to be taken if there a positive search is returned as buyers may end up paying for an asset where they gain no title.

The same applies where a prior owner claims retention of title over an asset. The law in relation to retention of title clauses can be quite complex and whether one is enforceable or not depends on the type of asset involved, the drafting/incorporation of the clause in question, and the facts surrounding the transfer from the original seller and onwards from the secondary seller.

It is also worth highlighting that other third parties may gain rights over the assets in question, such as a “baliee” – a person with possession of the asset, but not ownership, who can retain possession until paid for their services or storage. So certainly in terms of vehicles, it’s important to understand where the assets are being stored prior to the sale and to obtain confirmation that any third party storage (or repair) costs have been paid.

INSOLVEMENT SELLERS
In certain situations, such as a sale by administrators of a company, it will be almost impossible to obtain warranties as to title and statutory protections will likely be specifically excluded. In such cases it is likely that the buyer will be purchasing the assets at a significant discount and so the risk of non-passage of title is balanced. However, that’s not to say a buyer should enter in to such contracts without a full appreciation of the facts and risks.

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CURRENCY MANAGEMENT IS ALL ABOUT THE PLANNING


Exchange fluctuations are avoidable

ADAM BERNSTEIN is a freelance business writer specialising in management, marketing and the law

ADAM BERNSTEIN
is a freelance business writer specialising in management, marketing and the law

While many retailers only buy and sell in sterling, the effects of currency changes will be an issue for manufacturers and distributors and by extension, retailers too. Anyone watching the slide of sterling in the run-up to the Brexit vote last month will have seen import prices rise while exports became more competitive. So how does the currency process work and what can be done to fix a commercial exchange rate?

There are undoubtedly all manner of ways to complicate things and while there are as many variations on currency products as there are permutations on a lottery ticket, there are also some straight- forward steps that businesses can take to manage currency risk.

As business becomes increasingly global, especially where products are sourced for retail, the issues surrounding foreign exchange management become ever more pressing.

PLANNING

David Johnson, a Director of Halo Financial, a foreign exchange firm, says that a conversation about currency risk generally starts with minimising exposure and that gambling on exchange rates can be a recipe for disaster. “There are risk management tools which can be utilised” ” he says. “Anyone who claims to be able to pinpoint exactly where an exchange rate will be at a certain point in the future is deluded.” Johnson adds that a market with millions of participants which transacts $5.3tn a day is not something which can be forecast with any level of certainty.

money

MANAGING RISK

For those that are entirely risk averse, as soon as they have an identifiable currency risk, they might choose to purchase all of their currency requirements. If cash f low allows, they may wish to do that and hold the proceeds of the contracts on currency accounts pending payment requests. They will have removed exchange rate variation from their planning and have the flexibility of cash at hand in the correct currency when they need it. Johnson says that if cash f low doesn’t allow for that and this is the more likely scenario, they can still cut all risk through the use of forward contracts which use today’s exchange rate upon which to put a contract in place while delaying the final settlement of that contract for up to two years. This generally requires a part payment / deposit initially but it aids cash flow by keeping the bulk of funds available as working capital. “The other advantage of forward contracts”, notes Johnson, “is that, if payment is required more urgently or if the payment needs to be delayed, the forward contract can be flexed to either draw down for early delivery or extend (roll over) to a late settlement date if necessary.” It appears that many companies find that forward contracts are the tool of choice for payment of invoices on 30, 60 or 90 day terms as they provide exchange rate certainty for the whole credit period. Forward contracts are also used where goods are received on consignment or where letters of credit are required.

A firm that wants to see if the exchange rate is moving in their favour, and who wants to wait to see if there is some advantage to be taken from that trend, should consider a stop loss order (SLO). “This device is placed into the foreign exchange market with a market maker to guarantee a minimum exchange rate. The order sits as a latent instruction but isn’t actioned until the market moves in such a
way as to trigger the order,” explains Johnson. He illustrates the point with an example: A distributor needs to buy US dollars and the current market exchange rate is $1.42 but the trend looks like it is heading higher, they may be tempted to wait for a better level. Obviously the ever-present risk is that the trend changes and the pound slumps through to $1.35, wiping out any profit. Let’s assume they cannot make a return on the contract unless they can achieve at least $1.40 or better. In these circumstances, they could place a SLO at $1.40 to guarantee that rate as the worst case scenario while leaving the opportunity to buy at higher levels if the pound continues to rally. Essentially, even if the pound collapsed, as soon as the sterling – US dollar exchange rate fell to $1.40, the order would be triggered and they will have bought their US dollars.

There is another alternative to the SLO – options. Johnson says these are used by many companies, especially where they have sizable requirements and/or long term projects. He cautions that they can be expensive because plain vanilla options, as the basic form is termed, require the payment of a non-refundable premium yet they serve the same basic purpose as an SLO. The flexibility in an option is in the right not to exercise the right to buy at the option level unless needed.

USING VOLATILITY
Automated orders can be used in another way. A limit order can be used to target an advantageous exchange rate which is above the current level. According to Johnson this works because the foreign exchange market doesn’t rest. Trading begins on Sunday night UK time and continues around the clock until the US markets close on Friday night. “One by-product of this is that some of the most volatile periods occur when individual markets are opening or closing. This volatility can be captured by placing automated limit orders at pre-determined exchange rates. As long as the market trades to the nominated level, the order will be filled.” Clearly firms need to plan ahead.

PLANNING, PLANNING AND PLANNING
To a large extent, planning is the key to every aspect of success in managing your currency needs. If you ask all of your questions in advance, dot all the i’s and cross all the t’s you will suffer fewer shocks and avoid nasty surprises.

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ZF CONFIRMS TRW IS ‘AN ASSET’ THAT WILL REMAIN


Helmut Ernst

Helmut Ernst

Component manufacturer ZF has re-affirmed its commitment to ZF at a press conference held during Automechanika. The conference was led by Head of ZF Services Helmut Ernst, alongside Neil Fryer, VP of aftermarket at TRW.

Ernst said in an interview with CAT after the conference that the combined organisation will change in the UK, but only as the market changes.

Describing the brand as ‘an asset’ he also said that there was ‘no reason’ to think that any of the sub-brands such as Brake Engineering would be affected. “All of the arrangements that TRW has made for a direct link to customers have their reasons. If it was logical for TRW to look at different levels of the aftermarket, we can clearly follow their logic, also” he said.

Commenting on the changes to UK operations, Ernst said: “ZF Services in the UK will change as the market changes. There will be a steady change and to bring together these two very successful aftermarket operations is only the first step”.

Ernst believes that networked vehicles with complex electronic systems represent the next big opportunity for the aftermarket. “The car is changing in respect of connectivity and we must be ready to service and repair these systems. It shouldn’t just be down to the vehicle manufacturers – it should be an open market” he said. “I don’t think it would be a threat as long as the access is there and we will deal with that”. To develop this, the firm has opened a new division called Openmatics to deal with aftermarket fleet telemetry.

When we asked what he would most like to change in the aftermarket, Ernst replied: “Nothing! I like the aftermarket just as it is”.

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REPORT IDENTIFIES GROWTH FOR UK AFTERMARKET

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REPORT IDENTIFIES GROWTH FOR UK AFTERMARKET


Volume by percentageA report has been published identifying a £195 million opportunity for UK aftermarket firms to expand in three major emerging markets, as demand grows across the world.

The UK automotive aftermarket is thriving, ranking fourth in Europe and ninth in the world in terms of size, and turning over an annual £21.1 billion, according to the report. The sector supports 345,600 jobs and contributes £12.2 billion each year to the economy. And it is growing: in line with the UK’s increasing car parc, the sector’s value is set to rise to £28 billion by 2022.1 The UK also enjoys robust trade with other European countries, with Germany its largest market, followed by France and Spain. In fact, Germany purchases more components and accessories from UK-based parts suppliers than it does from any other country.

However, an SMMT Frost & Sullivan report shows that international markets and in particular emerging markets, offer the biggest potential for growth. International Opportunities for UK Aftermarket Companies shows that suppliers exporting to these regions can grow their businesses at rates four to five times higher than the annual 3% they can expect in the UK. The total global opportunity stands at some £500 billion for aftermarket business.

The report explores the potential for growth in three key emerging markets: China, India and the GCC region of the Middle East.2 Together, these three aftermarkets are worth some £54 billion – so the potential for growth is significant. Just by keeping pace with these markets’ natural growth, UK aftermarket companies could double their income to £195 million over the next seven years.

The UK automotive aftermarket sector is part of an industry which relies heavily on the tariff-free flow of goods across borders, with component sub-assemblies often sourced from a diverse range of countries. Further growth into new markets would benefit from new trade agreements, but that should not give reason for delay.

Mike Hawes, Chief Executive, SMMT, said, “The UK’s aftermarket sector is one of the world’s most dynamic and the record attendance at Automechanika Frankfurt demonstrates the sector’s success and global ambition. To help companies exploit these opportunities, government must secure the competitive conditions that have allowed this export-led industry to thrive. This means tariff-free trade with our partners across Europe and further trade deals with emerging markets.”

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