Give and Take: Grow your own

27 Oct 2011 | Caron Bradshaw

WHEN WE got the results of our salary survey this year it was clear that a number of respondent charities had taken their focus off talent management, and in particular the retention of talent. Retention of staff was only a key focus for just over a third of organisations, slipping from 58% the previous year. In fact over half stated that they simply weren't focusing on retention. Perhaps we have more than enough to be thinking of in just keeping our ships afloat, or perhaps we have slipped into the trap of thinking in straightened times people tolerate with more dissatisfaction (the fear being that the alternative might be unemployment).

I also met two women recently both of whom have inspired and challenged me on issues of talent management. It got me thinking about what we should do as an organisation to not only talk the talk (encouraging others to focus on appropriate reward and recognition to keep good staff on side, motivated and giving you their very best) but to also walk the walk - leading by example.

The first is Karen Mattison, Co-founder of ‘Women like us'. She passionately and convincingly speaks on the talent we (employers) often overlook in women who have taken career breaks and returned to work by the assumptions we make and the traditional approaches to job structure. Our salary survey also reinforced our knowledge that more women work in junior roles and often have lower levels of career satisfaction. The challenge to our members is to consider how to use skilled experienced workers who choose to take junior roles, perhaps in the pursuit of better work life balance. Is this really delivering balance and mutual benefit or are we just failing to challenge stereotypes and provide realistic opportunities for more flexible and rewarding working?

The second inspirational woman was Rachel Whale, who runs Charityworks, a graduate scheme. I could admit to being initially a bit sceptical as to what a graduate scheme might achieve for us - that it might be something suitable for bigger charities. I was also concerned that it would it be assumed to be an excuse for cheap labour. Would it really provide an opportunity to attract new talent into the sector with the desire that values driven success can be grown from within and the sector offering a realistic career option?

Rachel outlined the scheme, how it dovetails into wider leadership initiatives and the benefits to organisation and graduate alike. Rachel challenged me to think about how we might be able to play an active part in talent management. Now I am no push over - I don't just say yes to an interesting proposition but need to be convinced. But I did have to think hard to try to justify why we wouldn't put our money where our mouth is and help raise our role and purpose in the consciousness of a talented graduate whilst at the same time benefiting from their enthusiasm, desire to learn and grow, values and drive.

This scheme enables us to support the nurturing of talent and potential future leaders, meets our workplace needs and exposes the next generation of sector talent to the vital role we play in raising the standards of charity finance. It doesn't cost us much more (once we taken into account employment overheads) than if we'd gone to market for an employee either. From the graduate's perspective they get a paid placement with intense support, mentoring and training, a probably like minded ready made peer group and exposure to a wide cross section of charities.

So my challenge to others - if we're really serious about growing our own talent and hopefully seeing those who move between sectors taking with them values and social awareness that's at the heart of our work then let's start really looking at how we can create more opportunities - it just makes sense not only for charities but for the wider future workforce narrowing the gap between 'for' and 'not for' profit.

Caron Bradshaw is CEO of the Charity Finance Directors' Group and blogs regularly for Financial Director

SME Exchange: The wisdom of a cautious approach to lending

05 Oct 2011 | Nemone Wynn-Evans

THE MOST radical recommendation in Sir John Vickers' Independent Commission on Banking, which was published on 12 September, was the suggestion that banks must introduce a firewall or so-called ring fence around their lending businesses to households and small companies, and that entity must hold minimum high-quality capital of 10%. Their investment banking operations will sit outside of this in the future.

The question for SMEs and entrepreneurs all over the country is: how will this affect the willingness and ability of retail banks to lend?

Lending to SMEs post-credit crunch has been a subject of considerable and often heated debate. The widely held view is that banks haven't done enough to support businesses as the UK economy gradually pulls out of recession, potentially making the recovery slower than it might have been.

However, figures published by the Bank of England show that the main banks lent £53bn to UK businesses, of which £20.5bn was to SMEs, in the second quarter. This represents an increase of 22% on the previous quarter.

The Bank of England data challenges the received wisdom that banks aren't lending. What does seem to be the case, however, is that they are being more cautious in their approach to lending.

Given recent experience, it would be difficult to argue that this is anything but a good thing.

The Vickers report proposes a range of measures designed to improve access to bank accounts for small business customers. In addition, the commission wants to ensure that the portfolio of branches being sold by Lloyds Banking Group introduces a strong challenger brand to the market.

Banks have been given until 2019 to implement reforms, so it will be some time before we know how these recommendations will affect the banks' willingness and ability to lend to businesses. As UK banks control 85% of the business banking market, the introduction of more competition has to be a good thing on a very simple level.

If the perception – or indeed the reality – persists that bank finance is difficult to obtain, SMEs may continue to seek alternative forms of finance, such as issuing corporate bonds or seeking to list on a public market and raise cash from external investors.

But no matter what type of financing route a business chooses, it is critically important that a carefully prepared business development plan, with detailed and robust financial forecasts, is available. Proper business planning is the key to success. Without it, financing will not be made available, no matter how generous the banks are feeling.

The Entrepreneur’s FD: Growing beans, not counting them

03 Oct 2011 | Sara Dew, The FD Centre

THE ROLE of the finance director in entrepreneurial and fast-growing businesses has had to change and move away from just keeping the score to addressing pro-active management of cash, creating visibility for the owner to drive and manage growth, and developing the longer-term strategy of the business.

The modern FD should be actively participating in enabling the growth process of a business. While the entrepreneur is the leader, the modern finance director is the key part of the senior team within a business, and must be able to make a difference.

Bean-counting is no longer good enough. The FD needs to help grow the beans as well.

Fundamentally, the role of a modern FD is to make a difference to an enterprise, and this includes helping and enabling the business to grow.

What makes the sort of FD that helps businesses grow?

The bean grower FD isn't going to do marketing or selling. However, to grow a business, the entrepreneur needs to decide what to direct the sales and marketing teams to sell, what's likely to make the best profits, what products or contracts will help improve or destroy cashflow, and which customers are likely to pay on time.

Consider all this, and then roll in the fact that the entrepreneur is going to need to understand what to do and where to go in order to to generate cash from within the business and possibly outside. The entrepreneur will begin to see the benefits of engaging a bean grower as an FD.

Remember that this is not an either/or. It's not a choice to be the bean counter or bean grower. After all, we must keep the score on what's going on in the business. That's a pre-requisite for success.

Our contention at the FD Centre is that entrepreneurs should have and even deserve a bean counter who can grow beans as well as count them. This is what the modern FD should all be about.

How to spot a bean grower

So what does a modern FD, or bean grower, look like?

Here's my short list of the main things for which entrepreneurs are looking.

First, however: does the entrepreneur like you? You can check all the other items on the list, but the entrepreneur must feel comfortable with the FD. You will probably go through a lot together. Best to do this with someone with whom you can get along.

1. You should come with a set of business, commercial and strategic skills that are very strong.
2. You will have been there, seen it and done it a number of times over. Possibly in your entrepreneur's industry and definitely in others.
3. Your track record should show you've done things as opposed to just doing a job. There's a big difference. Entrepreneurs want you to do things for them.
4. You will bring with you relationships that will get your entrepreneur speaking to the right people, immediately and at the right cost. This will include the obvious contacts like finance providers, legal professionals, accountants and the like, but also marketing experts, IT experts, recruitment firms and all the other sources of support the entrepreneur will need to grow their business.
5. You should come with a set of contacts that can help the business grow.
6. If there are specific issues (such as the need to raise funds), have you got the demonstrable experience to fix them?
7. You should be able to speak the entrepreneur's language. You need to know what makes the industry tick. You need the relevant experience.
8. When they speak to you about their business, do you get it? Can you speak freely and are you at ease? Can they see you understand what they mean? Do you show empathy about the big picture in their business? Have you got insight on the profit drivers that will help them grow their business?
9. Finally, the pre-requisite bean counter items:
a. Qualified from one of the major institutes.
b. Been a real-life FD once, twice and several times over.
c. Able to talk too. (Note: Some bean counters find communicating difficult!)

These are the types of FDs that can really make a difference, and it's what you need to be if you want to be modern.

Sara Daw is co-founder and MD of The FD Centre

Miliband: is he anti-business?

28 Sep 2011 | Gavin Hinks

IS ED MILIBAND anti-business? After the way in which the Labour leader's speech was reported yesterday, you would think he'd called for the public flogging of all business people.

Sir Digby Jones told the press that the speech was a kick in the teeth. Commentators aimed their barbs at the would-be PM, wondering what has got into him.

I have re-read the speech this morning and wonder whether we all heard the same thing. The speech is obviously not anti-business.

It is, however, clumsy and makes an attempt at distinctions that may play well with core Labour voters and those furious with bank and financial services companies, but are unlikely to impress many in business. But it isn't anti-business.

The problem is Miliband's attempt to distinguish what he calls "predatory" companies from the "producer" companies. This shouldn't surprise us. The idea that "profiteering" is evil and making things inherently good is a nice bit of old Socialist thinking that has echoes all the way back to Karl Marx.

But Milliband uses it to colour our thinking of those who got us into trouble through the financial crisis. Bad as they were (and they were clearly bad), they also have their uses. (Declaration: I work in publishing, but it's possible to argue I am still in work because of private equity and supportive banks).

Which is why the effort in this speech to cast them into the darkness is so awkward. We still needs the banks, and Labour will need them if they win another election.

Perhaps the underlying issue for Miliband is that he wants a radically re-cast and re- balanced economy, where a decent chunk of our GDP comes from inventing and making stuff.

No arguments there. Clearly, the exchequer had become over-reliant on financial services to put bread on the table. And here's where Miliband's speech went wrong for me. Instead of using the speech to get heavy on bankers, PE people and anyone else who profits from investing (they employ voters too, by the way), he should have focused on the "re-balancing" and "growth".

He's a politician, though, and he's made the calculation that people (and his party's membership) still want to hear about retribution. Focus on that and he will never sound like he's comfortable with business – even when he is. My guess is his future meetings with business leaders will require some diplomatic dexterity.

Gavin Hinks is editor of Financial Director magazine

Business Matters: Building home team advantage

12 Sep 2011 | Financial Director staff

"INDUSTRY IS becoming more internationalised, and British industry must be ready to meet American and German competitors who are generally financially powerful and backed by banking and financial groups. Without similar support, British industry will undoubtedly be at a disadvantage, particularly in the establishment of British enterprises abroad. It will, therefore, have to keep in close touch with institutions connected with international finance. Industries and financial institutions will thus have to co-operate so that each is thoroughly intimate with the affairs and position of the other."

"Closer co-ordination between British industry and the City of London would be advantageous for the provision of long-dated capital, especially for large-scale industry. In some respects, the City has better facilities for providing capital to foreign countries than to British industry."

These two excerpts come from a summary of the Macmillan Report, published in 1931. As a result of this report, which first highlighted an equity gap, the forerunner of Investors In Industry (3i) was established. This initiative brought the banks closer to businesses and enabled many businesses to finance their development, grow, and create jobs.

However, it seems there may still be a case for suggesting that the London markets are focused on providing capital to foreign entities rather than to British industry. Of all the IPOs on AIM in the last few years, 25% have involved international companies. Some 20% of all AIM companies are international and they make up nearly 40% of the market capitalisation.

Is the success of these companies masking the fact that domestic companies may be losing out in getting the funding they need to be able to grow and create jobs? When times were better for IPOs, some small cap fund managers bemoaned the high proportion of foreign companies coming to market, as opposed to quality UK ones.

One of the problems for owners of small companies considering public equity markets is ensuring that enough shares are in public hands to create a liquid market in the shares. They must do this while not diluting the shareholdings of the owners too much. The owners are often concerned that they may be giving away too much too early.

One way of overcoming this may be to encourage the development of a corporate bond market for smaller companies, both private and publicly quoted. This would enable private companies to issue publicly held debt and maintain their equity holdings. This could act as a bridge for companies that need more than bank finance and wish to gain experience of public markets without taking the step of a full-blown IPO. This sort of market is being developed in Germany, with some success, and is attracting interest across Europe as one way to help fill the equity funding gap.

It will be interesting to see whether this sort of "closer co-ordination between British industry and the City of London would be advantageous for the provision of long-dated capital", as the Macmillan Report said 80 years ago. The Quoted Companies Alliance is keen to promote the debate on this and we will keep you updated on several interesting initiatives in this area.

Tim Ward is chief executive of the Quoted Companies Alliance. His past roles include head of issuer services at the London Stock Exchange and FD at FTSE, the index company.

In the National Interest: Panic on the streets of London

16 Aug 2011 | Stephen Fitzgerald

I LIVE close to Central London and as I sit in my front room, I hear the sound of sirens on the street. In my time of living in an inner-city neighbourhood, I have felt positive about the fact that, over the years, the streets have become safer and more welcoming, and I now live in an environment where it should be safe and positive for families to flourish.

The outbreak of urban rioting has raised questions about that progress. It is for politicians to argue about the current approach to deficit reduction in public spending. However, effective public finance policy is undoubtedly a key part of the creating a position where communities function effectively.

Against this backdrop of civil disorder, we are seeing a range of changes to public finance that could affect the picture. There are reductions in police and local authority funding, the localism of welfare benefits, and changes to the arrangements through business rates in the local government resource review. The government has now also announced special funding to assist in the aftermath of the riots.

There will be the inevitable arguments about whether the civil disorder is a result of pure criminality or a function of deprivation. But whatever the case – or if it is indeed a mixture of both – the management of public finance is intertwined with these issues. Whether providing police, cleaning up after disorder, or funding preventive social programmes, the availability of the appropriate use of public funds is key to the response that society will make.

I have a vested interest in seeing urban communities work. Within this context, correct decision-making is critical. It would be a disaster if the improvements in inner-city areas that have happened in recent years were reversed as a result of these unfortunate events.

All those in the finance community, including public sector finance directors, should be thinking hard about the financial policies of the future that can help to achieve more harmonious urban neighbourhoods. Hopefully, this can result in a more effective use of public funds. This can support a safer urban environment which, as a city resident, is essential for the quality of life for my family.

Stephen Fitzgerald is finance director of Hounslow

The Entrepreneur’s FD: The cap-ex conundrum

09 Aug 2011 | Jeremy Walker, The FD Centre

FOR MANY capital intensive businesses, 2011 will be an interesting year, especially if they were forced to reduce their capacity during previous years because of cashflow pressures.

Capital expenditure falls into three broad categories:

• Replacement capacity
• Additional capacity within current offering
• Additional capacity that broadens the offering

Replacement capacity is always the hardest to justify. The reason for this is that the payback for the investment is generally too long. The cost of repairing an existing machine that is fully depreciated, and the extra cost of labour to run it, will be small in comparison to the purchase of a new machine. It's possible the old machine will be slower and less accurate than a new machine, but the job still gets done.

The cost differential frequently means that the effective payback period could be 5-10 years or more. As a stand-alone decision, other projects will always rank above these from a financial perspective and that makes the possibility of justifying it almost non-existent.

As a finance director, I am looking for efficiency savings elsewhere in the manufacturing process to justify replacement projects. For example, old machinery frequently works more slowly than other machinery and this can produce a bottleneck in the production flow. Breakdowns can lead to downtime in other parts of the factory, which needs to be quantified. Therefore, the task of justifying replacement machinery is better accomplished by rolling it into the justification for additional capacity across the plant.

Additional capacity within the current offering is the easiest project to justify. Unfortunately, many manufacturing businesses do so – on the back of increasing the capacity or earning potential of the business – without looking at where the additional business will come from. Therefore, I tend to focus my attention on the risks relating to the additional demand rather than the additional capacity.

The quality of the sales pipeline should be of critical importance to the finance director, as the business will be using an uncertain revenue flow to pay the certain costs of increased capacity. The critical question is: how uncertain is the revenue flow?

To measure this, you need to look at current customer growth and new potential customer wins. And you need to consider whether the additional demand is within the current core capability.

The last category is always the most exciting because it's new on all fronts. The entrepreneur is buzzing, but the finance director probably has a bucket of cold water ready. The process that needs to be considered is as follows:

• Is the new capacity within the scope of the long-term vision?
• Is the new capacity within the core competence of the business?
• Is the demand for the new capacity certain and, if not, what are the risks?
• At what level will the new capacity be utilised?
• What alternatives to this project does the business have?
• Does the business have the funding available to see the project through if demand is at the lowest level?

In summary, capital expenditure justifications are planned and should not be reactionary. Rather than expecting additional business to come because the extra capacity is now available, entrepreneurs need to consider the certainty of the predicted demand for the additional capacity.

Jeremy Walker is regional director for The FD Centre, west country and south coast

Deputy editor's blog: Rejoice! It isn’t that bad

04 Aug 2011 | Richard Crump

WHISPER IT quietly, but – if the latest round of financial results coming out of the current reporting season are anything to go by – the UK corporate market is not in nearly as bad a shape as the debt crises affecting Europe and the US would lead you to believe.

Scanning today's business pages provides a snapshot of the surprisingly healthy, if not quite vigourously glowing, state of the UK corporate market. London-based Asia-focused Standard Chartered Bank reported a 17% increase in pre-tax profits for the first six months of the year (£2.2bn), mining giant Rio Tinto reported a big jump in earnings – up 30% to £4.6bn – due to strong demand in Asia and higher product prices, and City analysts predict that Aviva's operating profits for the first half of this year will exceed the £1.27bn seen in the first half of 2010.

Obviously, there is a corresponding tale of woe for every good story and the resignation of Thomas Cook's chief executive Manny Fontenla-Novoa is proof of that. However, it feels as if the positive is starting to outweigh the negative, at least as far as the UK corporate market goes: the performances of Aviva and Standard Chartered can easily be joined by the likes of Weir Group, GKM and Rexam.

Businesses have started to emerge blinking into the daylight after a period of retrenchment, despite the prospect of darker days ahead, and are sitting on healthy cash positions in many cases. But many are casting in the direction of 2012, and very few corporates are making noise about ramping up their cash expenditure.

It seems it is far preferable to line the pockets of shareholders with cash and it doesn't seem like such a bad idea, given that holding cash on the balance sheet is even more inefficient that normal.

Rio Tinto said it would increase its share buyback programme by $2bn to $7bn, analysts expect Aviva to increase its interim dividend to 9.5p per share, and Rightmove has hiked its dividend by a whopping 40%.

However, Greece remains an open financial wound, the economic health of Italy is questionable, and the usual array of doom-mongers predicting the next financial crisis are out in force. My advice to FDs and shareholders is to enjoy the sun while it lasts, because rain is ever on the horizon in the UK.