Government austerity measures are likely to have a severe impact on John Wilkes’ business, but he’s already planning for survival.

The biggest issue John Wilkes and his firm ANDS faces is the current cutbacks in the public sector. And while business is good at the moment, he’s  well aware that now’s the time to prepare for a downturn.

ANDS offers training and recruitment services to local authorities and their providers. “We tend to work in the areas such as land maintenance, waste management, low level IT and – which is our biggest areas – parking enforcement,” explains John. “When I tell people we recruit and train traffic wardens, we’re suddenly their least popular contact. But it is a vital part of how the country works.”

John’s business model is to sign long term contracts with local councils with an agreement to recruit and train a certain number of people per year, either in one specific area or across a range of different roles. While never the staff’s employer, ANDS is also responsible for performance measurement and ensuring the staffing levels remain at the required rate. “So we may have a contract to bring eight people on board a year, but if two of those leave within that year, it’s our role to replace them.”

The actual recruitment of people is not that difficult, says John, despite the reputation of many of the roles he recruits for. “Our main purpose is more on the administration side – most of the positions require criminal record checks, and we need to be very careful that those we do hire have the right to remain and work in the country. It’s also in our best interest to ensure they are genuinely keen to do the job, because the cost of replacing people also falls to us.”

Starting up

John started ANDS with two colleagues six years ago, when the local authority he was then working for decided to outsource the operations for his business. The trio would have either been made redundant or been transferred to a new employer, so they thought that with their knowledge of how the system worked, they should form a business and bid for it themselves. “The council was initially a bit unsure about using us – we’d done a good job for it but we were a new company. And while the first contract was small, it didn’t want anything to go wrong. It took us a long time to even convince them that we should be taken seriously. Even then, we didn’t get any preferential treatment, our bid was decided on its own merits and we were up against two other providers, each of whom had far more experience.” Fortunately, John’s business won the contract, and from that moment on, events moved at a rapid pace.

“All three of us had only worked in local government for our whole lives and we didn’t have any experience of running our own business, so it was a steep learning curve!”

Each partner put in an initial £20,000 to get the business started and agreed to defer salaries for three months. “Our start up costs weren’t that high,” explains John. “We already had the first contract so we would be working on that to start with, so we needed office space, IT and some funds to pay for recruitment and training costs.”

Even though its first client was a central London council, the new company felt that there was no need to pay the high commercial rents of central London and instead took a suite in a serviced office out in the suburbs.

“Taking an office in the centre of the city would have cost us at least a thousand pounds a week,” he says. “We now don’t even pay that a month.”

Once the first contract was up and running, the main priority for the company was to bring in additional business. “This first job was a good one, but it wasn’t enough to sustain the three of us in the long term,” explains John. “But we wanted to show that we were able to do a good job so we didn’t bid for anything else for the first six months so we could build up our reputation. Our timing proved to be good, as a number of tenders came up about five months after we started. We bid for all the ones we thought we could do, which numbered about 11 different contracts, and we managed to secure two of them. We were actually quite disappointed that this was all we got, but in the event it turned out for the best – we couldn’t have coped if we had any more.”

Since then, the business has grown steadily. With each contract lasting for an average of two years, the company has picked up a net average of three a year,
and now works for eight different local authorities on 15 different projects. The three founders are still part of the business, which has hired a further six full time staff as well as a number on short term or part time contracts for busy periods or when additional specialist skills are required.

“We’re not exactly millionaires,” says John, “but we’ve done pretty well and I’m happy with the way the business has developed. We’ve built ourselves a good reputation to the extent where we are now invited to tender for projects rather than having to push ourselves in. We’ve got good relationships with most of our
clients, and also with our suppliers, such as recruitment agencies and specialist training organisations.”

Finances

ANDS launched with a basic bank account from HSBC, and has never seen a need to switch. “We don’t see a lot of different payments go through, we are not a cash business and I can do almost everything with internet banking, so the actual bank charges are fairly irrelevant to us,” explains John.

One of the issues the company does face is late payment. “We only have a few clients, so if more than one wants to wait until the new financial year before paying us, it can really knock us out – this happens more than you think, there have been a couple of years when no-one has paid us until April!” The firm has an overdraft facility with HSBC for such an eventuality, though it has also built up reserves which, says John, can fund the business outright for three months. “Wherever possible we try not to use the overdraft because it can get expensive, but it’s a good safety net for if we ever need it.

The other key area for the company is insurance. “We’re an employer, so we have to have employers’ liability insurance, and we also protect our equipment with a contents policy. But because we operate recruitment and training schemes, there is the possibility of huge legal claims – we haven’t had anything of that nature, thankfully, but we make sure we have the right insurance policies in place if ever there was a claim.

The future

Government cuts could have a major impact on ANDS, but any impact is yet to be felt. “We know that local authorities are cutting services and freezing recruitment,” says John, “so we have to prepare for that.” Because the length of the average contract is so long, the company still has plenty of business but they are keeping control of expenses and looking for new avenues. “A year or so ago, we started looking at what we could offer the private sector – perhaps recruiting and training security guards or other, similar, levels of staffing. We also don’t do a lot of training for people who are already in employment and that’s an area we should explore.

“But really it’s about keeping the contracts we have and keeping the costs down. One of our staff is due to leave just before Christmas as she is moving away from the area, and we’ve taken the decision not to replace her straight away. We’re going to batten down the hatches and ride out the storm – it’s better to survive than try too hard and lose the business.”

Very few people expect to be paid by cash or cheque nowadays. But which is the best card for your business?

The gradual phasing out of cheques across the global economy and the desire amongst businesses to keep a closer eye on spending and record keeping should mean that payment cards – across all products – should be an ideal way of allowing key staff the ability to fund their expenses as they go about their business.

As a low cost and easily managed service, they are easily scale-able and can be tailored to each individual business’ requirements.The small business sector has often been amongst the early adopters of new technologies and financial service concepts, where the costs are acceptable and the benefits clearly identifiable. The development of the early telephone banking schemes targeted at the business sector and the adoption of first generation online delivery channels are two such examples.

And now it’s cards. Whether you want just an easy way to pay, or the option of a few weeks free credit, or even the opportunity to pay off larger purchases over a flexible period, payment cards may be for you. Below, we list the different types of card available, but essentially they fall into three different categories.

The first is a debit card. It works in the same way as your personal debit card – every time you use it, the money is automatically debited from the account to which it is linked. If you don’t have any money in the account, you may get the transaction refused. There’s no credit, no time to pay.

The second is the credit card, again the same as a personal credit card. Any transactions will be put on to a balance and you’ll have a set period in which to pay off the balance before you incur any interest fees. If you don’t pay off the full balance by the set date, interest rates will be charged. While credit card interest rates are usually higher than most other borrowing costs, they are also much more flexible, allowing you to pay off as much or as little as you like – provided you make the monthly minimum payment – according to your cashflow.

The third is a charge card, which are available although less common for personal accounts. Like a credit card, the transactions are moved in to a single account, for which you will be billed, usually each month. This bill needs to be paid off in full; it is not a form of credit and if you don’t pay it off in full, you’ll be stung by some hefty fees, as well as possibly seeing your company’s credit record damaged.

The business card

‘Business card’ is a generic term used by the payment system organisations,and the principal function of these products is to provide a service to the SME business sector. A range of added-value features and benefits are available through either the payment system organisation or through the card issuer. These might include extended warranty, legal referral services, supplier discounts, etc. MasterCard’s Europe Business Exclusives and Visa’s Savings for Business programmes are examples of how the payment system organisations have been able to use their power to negotiate a wide range of discounts for cardholders at a variety of merchants. In common with the other commercial plastics, this type of product also offers the potential to simplify the associated administrative processes.

The online debit card

This product is designed to work solely with an online environment where all transactions are subject to authorisation. Facilities such as these might be made available to employees to provide them with access to cash from the business account via an ATM or to allow them to make purchases from selected retailers. The product is particularly suitable for new businesses or those new to credit, whether they hold a bank account or not. The card can also be issued safely to businesses that have a sub-prime or badly impaired credit status. The deferred debit or charge card Whilst the statement arrangements may vary, this product allows the payments made with the card to accumulate between billings. The total of the amounts charged to the card is then submitted for payment or electronically debited to a predetermined account.

The travel and entertainment card

These products are now available from all of the main marques and can offer many important benefits to small businesses, including:

• cashflow management;
• improved analysis, budgeting and control;
• the inclusion of the potential to identify cost savings through negotiation;
• the ability to police compliance with travel policy;
• improved management reporting of travel expenditure.

The level of management information provided by T&E schemes has been an historic strength of this type of programme. Additional benefits typically include reward schemes, travel, car hire and baggage insurance with a level of emergency support services.

The revolving credit card

This card directly emulates the credit lines available to personal sector clients, and might typically carry a similar tariff and other product features. It carries a full credit risk, determined by the line made available to the cardholder, and pre-qualification will be necessary before such a product can be issued. This card may be issued in the name of the business for many different purposes. It may be carried by employees in order to ensure that they can draw on an account for which the company is responsible when they need to make disbursements or acquire cash.

The executive business card

Such products are issued as either debit or credit cards according to the strategy of the issuer and their availability through the respective payment system organisation. They enjoy more distinctive designs and appropriately higher product specifications. They may be issued as Gold, Platinum or Black, and may enjoy the advantages of the highest products within the provider, eg, Infinite, World Signia. The products are targeted at customers of the highest standing, and carry a portfolio of mandatory benefits specified by the marque, such as concierge service, in addition to optional extras added by the issuer.

Fuel cards

Those businesses that spend a lot of time on the road are more than well aware of the growing fuel costs they are having to suffer. And if you have staff who regularly need to fill up at the petrol station, they may not be so keen to simply buy the fuel themselves and then claim it back. These card services are often normally associated with larger organisations, but they also have a valuable role to play for the small business.

The lodged card

If your business regularly uses a third party to source products and services for you – for example a travel agent to arrange regular business travel – it may be worthwhile to provide that third party with its own credit card in your name. These are known as lodged cards – it’s your card and your responsibility to pay the balance, but you won’t ever use it to make any payments. While you need to trust the organisation you log the card with, this card can prove a very useful way of keeping track of certain types of expenditure, while giving you the convenience of knowing that the products and services you need can be easily sourced. Unless you’re expecting to have a huge balance to clear every month, youcan just use a normal credit card, but there are some specialist lodged cards products that are designed specifically for the purpose.

The recession was both the reason for John Walls’ decision to set up his business, and the reason for its success.

Redundancy was the impetus for John Walls to set up his own business, and he says it’s one of the best decisions he’s ever made.

 

“I worked in IT support for a bank and when the financial crisis started to bit in late 2008, the writing was on the wall.

“Everyone in my department was warned that we may lose our jobs and we were invited to apply for voluntary redundancy. We had a few months where we could make up our minds and that time gave me the chance to research the market and see if it was worth going out on my own.”

John’s idea was to provide IT support to small companies. This would range from setting up a single PC in an office to managing and hosting websites, to building networks in smaller companies.

“As I knew from my own experiences, even larger companies were getting rid
of their in-house IT support and smaller companies would never be able to afford an expert of their own,” says John.

“There are lots of companies that provide IT support, but my idea was that I would do so only in my town, so that I could visit the sites quickly and put my face about to ensure everyone knew who I was.”

While John was still working, he approached friends who ran businesses
in his home town of Stirling. “I wasn’t really pitching for work at that time, I was
just trying to see what sort of competition there was and what I could offer that they didn’t.”

Two main themes came from his research. The first was that the smaller businesses considered their IT as an afterthought – they didn’t really plan
for what they needed, they just bought equipment on an ad hoc basis without any forward planning.

“So my initial thought was that I would offer a free service where I could review a company’s set up and then offer advice on what they were missing out on and how they could develop their infrastructure going forward. I would look at what
they bought, the software they used, any external services they paid for and so on.”

The second issue that the smaller companies had was call out charges. “They
often got very frustrated with the telephone support they received, but because call outs cost so much they were reluctant to use them if the problems were fairly minor.

These guys are generally not computer experts, so if they had a problem with
something like their email, they didn’t know how to fix it. So I decided to have
two pricing structures – the first was on a pay as you go basis, while the second was for a low monthly contract.

“Big firms tend to have contracts with their IT support, but it’s less common with small businesses who may only have a couple of basic computers.

“This actually worked really well, because I would go into the business to do
the review and then I would know where the issues were. So I’d do a small monthly charge and then spend a lot of time getting everything working exactly right, so there’d be fewer problems down the line.

It meant that if I signed a contract for the year, there would be a lot of work upfront and then the plan would be that everything would work smoothly from then on.

My other idea was to get a relationship with one major supplier and try and get a
bulk discount on all the IT I bought and then pass on the savings to my customers.

I don’t take a cut from this, it’s part of the service contract, and it can mean that my costs are actually lower than the savings they make on their purchases.
Start up costs John’s start up costs were actually fairly low. “My employers had paid for me to take all the necessary courses over the past few years, so I was already up to date on all the certification,” he explains. “I thought that to get started all I would need was a good computer system at home and a car, and I already had both of those. There would certainly be further costs down the line, but nothing too high upfront. “I put about £3,000 of my redundancy money into the business – to pay for setting up a limited company, creating a website
and printing some stationery. But that all came in at under £1,000.

The most important thing was to get my name out there. So I nagged all the people I knew to give me a chance and then I went round to all the other businesses in the area to offer the free review. I was lucky in having a financial cushion from my redundancy so I didn’t need to start earning a lot of money very quickly – I didn’t earn very much for the first few months, because I was offering the low cost monthly contracts and you need a lot of them to make a living, but we’ve been going for two and a half years now and business is good.

Financial products

John’s financial requirements are also petty simple. “I got a business bank account with HSBC, simply because that was the bank I had my current account with and it’s never caused me any problems.

“I just took the basic business account – most of my clients pay me electronically and I don’t have too many outgoings. It offered free banking for the first 18 months, but because I’m not using it for overdrafts or cheques or anything like that, I still don’t have to pay much – it’s a couple of quid a month, if that. To be honest, I rarely go into a branch or speak to anyone from the bank – I do all my banking online and my finances are fairly straightforward – one account for the day to day banking, and another for the VAT Man.

“I don’t run an overdraft but I do have a business credit card. I only use this when I’m buying a lot of equipment from a client – my supplier gives me 30 days credit on anything I order, but sometimes clients can take a little longer to pay up! Because I always clear the balance straight away, I’m seen as a good risk and my credit limit has gone from £1,500 to £15,000 in two years.”

Because John is based at home and uses his own car to visit clients, he didn’t
need to take out much more in the way of insurance. “I told my home insurer that I ran my business from home, which didn’t affect the premiums – they seemed quite pleased that I would be home more during the day! My car is insured for me to use it for business purposes anyway, because I used to have to drive for my job, so that has had no impact. The main insurance that I have had to buy is a liability policy.

I’m unlikely to do much physical damage with my business, but there’s always the danger that I accidentally delete a client’s entire system. Touch wood, I haven’t had any accidents like that, but not only does a policy like this protect me, it also provides reassurance to my customers.

What next?

“The IT requirements of companies are always changing. Even though this
business is new, the sort of work I am doing now is very different from what I
was expecting when I started.

“I do much more work with firms who have people who aren’t based in the office. Sometimes that’s making sure their Blackberries are connected to the server, sometimes it’s about setting up a home office or preparing the network to allow access from remote locations.

“I’ve been working in IT for nearly 30 years and I’m pretty experienced. But I
know I have to keep up with the latest developments to ensure I can continue to
offer the best service to my customers.

“This is always going to remain a one-man business,” adds John. “I’m 51 now
and I don’t have ambitions to take over the world. But it’s providing me with a good living and I enjoy it – I like the work, I like my customers and I like the flexibility that means I can take an afternoon off to go and play golf whenever I feel like it!”

 

One option for budding entrepreneurs looking to start out on their own is to use the support of an existing company by buying a franchise.

There’s no doubt it’s a tough environment for small businesses at the moment. As consumers, businesses and the public sector all rein in their spending, sales are getting tighter and margins smaller. One option for entrepreneurs looking for a safer bet is to buy a franchise. Opinions vary on the benefits of franchise, but those who support the concepts suggest that business franchises are far more likely to succeed than standalone start ups.

Choosing to go down the franchise route is a big decision – it’s usually a big
commitment in both time and money, and can mean starting up is more expensive than for a business that’s your own idea. But in return, you may receive one-to-one support, national marketing, bulk discounts
on products and quality supply lines.

How it works

Here, a franchisee, an existing successful business, effectively licenses that
business to the franchisor, a third party.

This franchise gives permission for the franchisor to operate that business in a
specific location and use trademarks, marketing materials and perhaps some
of the back office management to help the business grow. Training is usually
provided, and depending on the business, you may also be given a customer base as part of the package.

The benefits for the franchisor are that their business grows, but the risk for that
growth is passed on to the franchisee, and they get an income as a result of the
success of the company as a whole.

But of course, you remain in control. It’s still your business, and you’re responsible for its growth – you decide when you’re open or available, whether to hire staff, which bank account you need, whether you need commercial finance, which insurance provider to choose from, and so on.

The types of business available for franchise are massively varied. The British
Franchise Association (BFA) lists over 200 companies, and there are many more that are not members. The most well-known types of franchise are household names; the likes of McDonald’s and many of the country’s larger estate agencies have longstanding and successful franchise operations. But there should be something there to suit your requirements – from
health care, to trades to technology.

The costs

When calculating the likely cost of a franchise, you need to take both initial and ongoing fees into account.

Initial costs

The franchisor – the business that sells you the franchise – usually charges an up-front fee. If the franchisor relies mainly on taking a percentage of your sales revenue, rather than on a high initial fee, it is usually a good indication that they have confidence in the value of their product or service.

Your largest initial costs are usually your investment in:

• premises
• equipment
• initial stock

You will need to establish a business entity. Although a franchisee holds a
contractual agreement with the franchisor, each franchisee is an independent business – and it is this business entity that will enter into the franchise agreement. Your chosen business structure could be a limited company, partnership or sole trader – each of which will involve different costs -
or your franchisor might have specific requirements.

The amount you pay varies according to the franchise, and what you get for it. Some of the most well-known franchises have start-up fees that run to tens of thousands of pounds, while others get you going for a few hundred. The cost will depend on the value of the brand, the amount of trading, the competition for franchises, projected incomes and a number of other factors. It’s a case of asking the companies you are interested in for a breakdown of their charges and full details of what they provide in return. Usually you will be responsible for premises, utilities and depending on the landlord insurance that already exists, most of the costs of keeping your business running will also fall to you.

Continuing costs

You usually pay a percentage of the sales revenue to the franchisor by way of a
management service fee. Alternatively, you may pay a fixed management fee.

Under the terms of the franchise agreement, you may have to buy stock
from the franchisor. Check what they charge. They may mark up the prices – or
they may be able to offer them to you at a discount because of their buying power.

You also have to pay the usual business costs – for example, rent for premises,
utility bills or the costs of any employees you take on. Again, check if the things that you pay for through the franchisor have a realistic cost.

Remember, though, that just because it’s a franchise, it’s still your business and
you have to take responsibility for it. This means that you need to make sure your staff are paid, your taxes are on time and your financial requirements remain down to you.

Advantages and disadvantages

Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks.

Advantages

• Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
• You can use a recognised brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise.
• The franchisor gives you support usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
• You usually have exclusive rights in your territory. The franchisor won’t sell any other franchises in the same territory.
• Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
• You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
• Relationships with suppliers have already been established.

Disadvantages

• Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
• The franchise agreement usually includes restrictions on how you can run the business. The franchisor might go out of business.
• Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
• You may find it difficult to sell your. franchise – you can only sell it to someone approved by the franchisor.
• All profits (a percentage of sales) are usually shared with the franchisor.

 

Several banks have announced measures that will help SMEs affected by the recent riots in London, Manchester, the Midlands and elsewhere.

NatWest and RBS will offer customers a range of solutions:

Fast-track requests for temporary credit increases provide short term financing to cover cost of repairs and replacement stock while businesses wait for insurance claims to be paid offer repayment holidays on existing loans to give businesses the breathing space they need to get back on their feet refund or waive overdraft fees incurred as a result of the riots on a case by case base basis. Other banks have announced similar schemes.

Meanwhile, businesses who have suffered damage as a result of the riots need to claim on their insurance quickly or they risk not being able to recover their losses, warns City law firm Reynolds Porter Chamberlain LLP (RPC).

RPC explains that most insurers require claims for riot damage to be notified within a very short period – typically seven days – otherwise the claim may be rejected.

This is because the insurer can make a claim in the policy holder’s name against the police to recover their losses under the Riots (Damages) Act 1886 (RDA). However, to do so that claim must normally be lodged within 14 days of the damage occurring.

Businesses that have suffered riot damage that do not have property insurance can also make a claim to recover their losses directly from the police under the RDA.

Stuart White, partner at RPC, comments: “Riots have caused millions of pounds worth of damage over the last few days.  Businesses that have suffered riot damage should notify their insurer as soon as possible so as to avoid being left without insurance cover. Any delay is an unnecessary risk.”

“Some independent retail units have been completely destroyed by the rioters, making them dependent on recovering the value of the damage to start trading again.”

“The good news for some of the smaller retail units that have been damaged is that even if they do not have a property insurance policy they may be able to recover the value of any damage sustained because of the rioting directly from the police.”

“However the compensation under the RDA will not normally extend to the financial losses of the business while it is unable to trade.  Trading losses are likely to be recoverable only by businesses with business interruption insurance.”

Stuart White adds: “Given the scale of these riots and the current pressure on police budgeting there will doubtless be calls to reform a law that compels police forces to compensate businesses and individuals for riot damage.”

“We will see whether insurers who cover police forces for the cost of RDA claims respond to these riots by pushing up the cost of their insurance.”