< Previous East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX James Pinchbeck, partner at Streets Chartered Accountants, considers the challenges being faced by charities and not-for-profit organisations. T he last few years have been challenging for many businesses and individuals alike, few though might appreciate the real upheaval and even struggle faced by charities and not-for-profit organisations. The issues they face are often around declining income, increased costs and in many cases increased demands for the work they do, especially for those providing social care, wellbeing and mental health services and support for individuals affected by the cost-of-living crisis. We have also seen similar pressures and concerns for those involved in the arts, culture, and heritage as well as many research organisations. Whilst businesses can look at increasing prices and passing on costs to maintain margins, or look at cost savings to manage the situation, it is not as easy for those in the not-for-profit sector. Incomes, especially for funded projects, programmes, schemes, or activities, tend to be fixed, as do the costs associated with delivery. It is also often more challenging to seek alternative sources of revenue or adapt services for new markets or opportunities. Those that have traditionally relied on donations have seen a decline in individual giving. Dealing with the cost- of-living crisis has led to a cost of gifting crisis. Managing budgets and working capital has no doubt become an even greater focus especially in light of increased operating costs with the overheads like energy and insurances all having gone up. Whilst financial challenges are high on the minds of the Boards and teams running organisations, they also see a number of other issues and concerns around their ability to fulfil their charitable objectives. These include issues around staffing, with the affordability of pay in many cases leading to situations where being able to recruit and retain staff is based on the ability to meet pay expectations. Certainly, being able to compete with the salaries for jobs with similar roles in the commercial sector is becoming more of a concern. Pressures on fulfilling or maintaining activities and providing services also creates an additional risk. With a stretched workforce and systems and processes under pressure, this potentially creates a situation where quality and delivery standards are not met. This could lead to not only failure to meet obligations but also the real threat of reputational risk. Like any organisation under pressure, sub optimal working practices and approaches can lead to an increased risk of health and safety breaches. The vulnerability of organisations in the third sector often leads to them being the target of cyber-attacks, fraud, and data breaches. Keeping up to date with procedures let alone being able to invest in mitigation and management around such things is certainly a real challenge. So too is the ability to adopt and capitalise on digitalisation for ‘business’ processes and marketing alike. More recently the general election and a change of government might give rise to a renewed level of optimism around support and assistance for the sector, equally it could give rise to concerns about new legislation or focus that may be less favourable. Certainly, and not least the announcement to charge VAT on school fees could be a sign that charities across the board may find changes to what is deemed to be charitable activities. Recognising the significant contribution and the vital role charities play in society and as part of our mixed economy, it is important that we seek to support them, be it as a volunteer, by donating or fundraising or even considering becoming a trustee or board member. As specialist accountants and tax advisers to the sector we believe that we play a key role in not only providing assurance but also in understanding the challenges clients face and being able to provide support and advice. This often being critical to and welcomed by stretched teams and Boards with pressures on thinking space for longer term planning. East Midlands Business Link www.eastmidlandsbusinesslink.co.uk A painful budget, insolvencies at an all- time high and trouble ahead. It’s a tough time to be in business, and many are looking at how to cash out. T bust has hit a 30-year high, and the Prime Minister is warning of a “painful budget” to come. With cash flow problems all across the board, many will be wondering how they can muster the finances necessary to keep operating in the coming months. Economic uncertainty such as this isn’t unusual, but what is a little surprising is high rates of business confidence, and the number of insolvent companies suggesting they could have continued operating with sufficient cash injections. forced to close as a result of mass closure of suppliers or customers, with debts defaulted on and invoices going unpaid. Our region has struggled with invoice payments in recent years, with more and more companies stretching out the terms to delay payment for services as long as humanly possible. If cash flow is the problem, then there are really only a few ways to solve it in the short term – firstly, to secure finance to alleviate the issue, be it through bank loans, sale of shares or alternative Struggling finance Struggling finance www.eastmidlandsbusinesslink.co.uk East Midlands Business Link FINANCE methods such as angel investors or crowdfunding. Or, the second approach, is to focus on turning invoices into cash. Our region has a major problem currently with late payments, forming a culture of it in some places – especially with certain Govt bodies being the worst at paying on time. Shortening agreements on payment clauses could help improve cashflow quickly, but there may also be money to be found in selling your invoices to factoring companies. These businesses will purchase and chase your invoices for you, paying you a smaller percentage of the sale in exchange for them taking on the delay and the risk. This is lost profit at the end of the day, but if customers are being inexcusably slow or if the cash flow needs immediate attention, it is a short-term solution to bring in some quick money. The risk with factoring, and something that should be addressed if you are considering using it, is that it comes with stigma attached. To make their own money, factoring companies naturally are quite aggressive in hunting invoices and late payers, and while those people certainly should pay, and are required by law to do so, they may associate those aggressive tactics with your own company. This could lead to customers not wishing to do business with you in the future or feeling like you have “set the hounds” on them for being a little late on their bills. In times like these it’s normal, even instinctual, to look to buoy that cashflow with a loan. The poor trading conditions will pass surely, and all that’s needed is a little injection, some stimulus, to keep things running until that time. This is the common response, but it may not be the correct one. A truth that few like to acknowledge is that if a company is so sensitive to trading conditions that it can suffer, then perhaps it is time to re-think things and see if that can’t be fixed. Or, if it can’t, if it might not be time to put the business up for sale. The question therefore becomes, should you inject more money into a business to keep it afloat, or look to cash out? Nowadays, many people do not think kindly on selling their company. The idea seems to be that those who founded it should see it through to the end, bitter or not, but the reality is that any business owner likely founded their company for one reason and one reason only – money. There may have been other benefits such as being your own boss or the pride involved, but financial reasons and a better lifestyle make up the main reasons, and those should be kept in mind in difficult times. With the uncertain state of the economy and conditions ever worsening, along with the great resignation and skills shortages in several industries, it may be that a daunting time lays ahead for many, and that selling the business on to another that can steer it through said waters would be better for everyone involved. It’s not a question of quality of leadership despite how personal a decision it may feel. Larger companies © stock.adobe.com/Rido 24 Á East Midlands Business Link www.eastmidlandsbusinesslink.co.uk FINANCE © stock.adobe.com/goodluz can better consolidate and use resources to keep their assets stable, while SME’s and family- run business especially may struggle. This has become no less troublesome a matter with securing finance being so difficult of late. When everyone is struggling, banks are less likely to lend money, and even then, they will be looking for that finance to be invested in securing more business, not propping up a poor cash flow. Securing finance is again easier for larger firms with more assets to bring to bear. It is always better to try and sell a business when it is succeeding, and that may be a deterrence for some, but poor cash flow due to outside influences does not necessarily mean a weak business. It might be just what investors are looking for, especially if you can show that the company has and can be profitable when everything is not conspiring against it. Of course, in that situation it might be more tempting to try and bring the company through the struggle yourself, either to keep it under control or sell at an even more profitable juncture.www.eastmidlandsbusinesslink.co.uk East Midlands Business Link FOOD & DRINK INDUSTRY SPOTLIGHT In the wake of economic issues, a cost of living crisis and, before that, the global pandemic, the food and drink industry is doing its best to get ahead of the curve and embrace new technology to shore weaknesses in its business model. M any manufacturers are turning to AI and looking at how to incorporate it into food and drink machinery as a result of economic pressures. It’s less because they need AI and more because they are all too aware that other businesses are dealing with it, and no one wants to be the last one to incorporate it in the event it turns out to be the holy grail of food manufacturing. Not only is it the type of machine used that needs to be considered but the way in which it is used and with what intensity. A good analogy here is a car: you’re going to get more miles out of a tank of petrol or charged battery if your car is regularly and thoroughly serviced and maintained, if you drive at consistent speeds and plan ahead for breaking and cornering. The same is true of production and processing where regular inspection and maintenance can sustain efficiency and identify causes for concern before they result in extended disruptions. This will also ensure that machines are running Embracing technology new 26 Á © stock.adobe.com/ipopba East Midlands Business Link www.eastmidlandsbusinesslink.co.uk FOOD & DRINK INDUSTRY SPOTLIGHT at optimum levels and, thus, at their most environmentally friendly. As well as the ongoing issues that producers and processors have been facing for many years now – including staff shortages and the continuing skills gap – more challenges have arisen over the last twenty-one months. Namely, social distancing measures and self- isolation. The impact COVID has wrought on the industry cannot be overstated. Despite a relative return to normal, businesses are still feeling the economic impact of the pandemic, and news of Mpox has many fearing what the return of another infectious disease (if not Mpox then something else) might do to the industry. Declining labour availability is also a continuous issue for manufacturers, which automation and AI are being touted as a possible solution to. Using robots can streamline process, reducing the need for labour. Furthermore, the drive for sustainability is increasing across the sector. Automated monitoring processes give oversight into equipment efficiency, so outdated equipment can be replaced to use less heat. Packaging is the most common area of manufacturing in which to find automation. A consistent and sterile environment needs to be maintained to preserve the safety of consumable products. Packaging machinery is easy to clean and lessens the chance of product contamination from unscrupulous handler hygiene practices. Furthermore, there is less down time from cleaning machinery, than from continual hand washing. Automating solutions are varied, with the most common in packaging being can sealing, pouch making, and pick up and drop off robots. Another common usage of automation is to provide enhanced end to end traceability. It is crucial to keep exacting records of facilities and packaging processes that food products have gone through. In the event of an urgent recall, it is necessary to quickly identify affected batches. A scanner and barcode system is an easily implementable way to provide detailed product information, without www.eastmidlandsbusinesslink.co.uk East Midlands Business Link FOOD & DRINK INDUSTRY SPOTLIGHT © stock.adobe.com/ipopba needing to trawl through extensive logs. Although barcodes will be allocated to the finished product, they can be used to track products whilst at the manufacturing facility too. Barcodes could be allocated based on facility, batch code, or recipe type. This can easily be changed based on data upon rollout, making it a versatile investment. A barcode system could be a steppingstone to more sophisticated tracing systems. Software can be integrated within machinery to provide a user interface into the operation of the machinery, thus giving increased insight into operational efficiency. For example, beverage bottling machines are ahead of the game on this technology. Monitoring software within newer versions can give 24/7 oversight of productivity (speed of output, running efficiency of the machinery, and any jams or other issues). This means that operators always have access to the most up to date data, and can react quickly to any problems. These systems also store necessary data on recipes, product traceability and batch codes. This means that products can be searched by code rather than scanned, which is useful in the event of lost items. These management systems could significantly decrease operational costs. Having insight into the energy consumption of the machinery means that inefficient equipment can be identified and replaced before having a detrimental impact on energy and operating costs. Furthermore, inefficiently running machinery can be an early indicator that equipment is likely to break down. This allows manufacturers to run repairs, or even purchase new equipment pre- emptively, meaning that down time due to machine expiry can be mitigated. Taking steps to reduce energy consumption has the dual benefit of decreasing the carbon footprint of the business, meaning that manufacturers can be one step closer to achieving sustainability goals. This is a benefit that is passed onto the consumer, as many are increasingly looking to invest in companies which seek to enact widespread positive change. East Midlands Business Link www.eastmidlandsbusinesslink.co.uk EDUCATION AND TRAINING W ith the cost of living crisis in full swing, businesses are seeking ways to improve their efficiency. Internal training could be the answer. In training staff internally, businesses can diversify their staff and job roles, as well as increase the opportunity for development and new ideas. Training is an exceptionally valuable resource to a business. In a recent survey, 56% of UK workers stated that they would leave their current role if their workplace stopped providing training. 31% of those surveyed had in fact left a position after experiencing this. In house training generally means that one employee is used to run a training course for other employees of the same Training the internal team Hiring is difficult right now, which is why internal training up of existing employees is the go-to option for businesses, especially in the worsening economic climate. www.eastmidlandsbusinesslink.co.uk East Midlands Business Link EDUCATION AND TRAINING business. This usually involves the use of the company’s own expertise, resources, and unique perspective. This can be at their workplace, or at an external venue. This provides many benefits to both employers and employees. However, in house training can be difficult for businesses to justify, given the time away from other duties required to develop and run these programmes. So, what are the key positives derived from taking the in-house training plunge? Contrary to popular belief, in house training can be cost effective. If multiple employees need training, it allows all employees to attend at once, rather than training them individually. This also reduces travel costs and expenses, as the training could be held in-office or somewhere close by, meaning that mileage or even hotel bills do not have to be considered. It also means that new starters could be trained from day one, rather than waiting until an external trainer is available, thus increasing the productivity of the new employee early on. Employment of internal training allows businesses to put their own stamp on training courses. It means that trainees can be educated in the unique product, way of thinking and, or working that makes the business successful and distinctive. This helps to promote a group mindset, and a consistent way of working. It also means that all employees can be highly educated on the product or service they provide, increasing their understanding and ability to utilise their own services. In house training removes the need for unnecessary mixing, as those training them are people with whom they would already be interacting. Moreover, courses can be delivered online, via platforms such as Microsoft Teams. These sites allow screen sharing for easy demonstration and have a hands-up function to allow employees to easily ask questions. As many businesses continue to operate on a hybrid basis, this could seamlessly integrate into everyday operations. Whilst taking a day out for training will 30 Á © stock.adobe.com/Andrey PopovNext >