K2's Turnaround Update | Edition 2

Welcome to the K2's Summer 2022 Turnaround Update

I very much hope you will sign up to receive this newsletter via LinkedIn by clicking the “+?Subscribe” button above.

A warm hello to all.

Unfortunately, there is bleak news in today's papers with the Bank of England announcing that interest rates will rise to 1.75% - their highest level since December 2008 - as well as predicting that inflation will peak at 13.3% in October. Recession is also forecast for the last three months of the year.

For businesses, this means taking action now to optimise processes, prioritise productivity and ensure they have enough working capital to weather the storm. Short term staff cuts are not the answer but, unfortunately, that will be an action that many take.

Some of the advice in this newsletter might be of help to businesses looking to prepare for the turbulent time ahead.

In this edition:

• A happy occasion for a proud Dad???
• Talk to your accountant. They have a unique view of your business??? ??
• Proposed code of conduct for Directors following business collapses???
• Number of solvent companies filing for liquidation doubles. People are throwing in the towel!???
• Small businesses are being paid late but they have more power than they think???
• My son’s psychology study I’m hoping you’ll consider taking part in???

A happy occasion for a proud Dad???

After two years of delays, my family and I were finally able to celebrate my daughter’s wedding in Madeira. She has married the most amazing man and joined the wonderful Blandy family that have their roots there so it was a real privilege to visit.

Any words that I write cannot capture the emotion, joy and unbridled love of the occasion. To see your daughter so happy and surrounded by so many people gathered to wish her well is something I shall treasure forever. The wedding itself was marvellous and some particular highlights of the week were the ceremony itself (taking place in the most gorgeous garden), a BBQ and cocktail party up in the hills above the cloud line, a wine tour of Blandy’s Wine Lodge, and many lovely evenings with family.

Now back in the office, I feel like I’ve filled up on the intangibles of what life is really about.

Number of solvent companies filing for liquidation doubles. People are throwing in the towel!???

According to PwC the number of UK firms filing for insolvency in the first quarter was broadly similar to the same period in 2021.

But crucially they also reported “when the smallest firms and companies?that were liquidated when solvent?are stripped out, the figures show those filing while insolvent more than doubled in the first quarter…”.

But why would a solvent company go into liquidation?

Well, there could be a number of reasons, perhaps related to family or lack of successors.

However, given the number of economic headwinds such as high inflation, supply chain problems, labour shortages and energy costs, the BDO has reported business optimism has fallen by 4.82 points to 101.93, for the second consecutive month. Should we be surprised patience is wearing thin?

If you are struggling yourself don’t throw in the towel just yet though!

We would advise businesses to hang on in there, especially if they are still solvent. Conditions will turn around as they always do.

Even for those that are insolvent, there are alternatives to liquidation.

First, get a grip on tracking the company finances with our?free downloadable Cash Management tool.

Second, consider how these circumstances might be turned from a challenge into an opportunity. Perhaps your business could pivot to meet these needs and strengthen its own future for growth?

Give us a call or message if you would like to talk to someone about restructuring possibilities for and investment in your business.

Talk to your accountant. They have a unique view of your business??? ??

How much do you look to your accountant for strategic support?

A company’s accountants are trusted advisers and are best placed to be honest about the situation facing their clients. Make sure you are talking with each other on a regular basis.?

While business owners often don’t know what to do about certain business problems, their accountants can usually offer valuable advice. They can quickly spot signs of trouble and advise on what to do.?

Indicators of problems include: declining sales; growing losses; reduced margins; not paying the accountant; being in arrears with VAT and PAYE payments; being on stop with suppliers; reduction of overdraft facilities; and refusal of loans.?

So make a regular appointment and pick up the phone!

IoD says directors should sign up to a code of conduct following business collapses???

The Institute of Directors, an industry body with 20,000 members, has proposed that Britain's company directors should sign up to a code of conduct to improve behaviour in boardrooms. The white paper they’ve written has largely been prompted by several high-profile corporate collapses, such as builder Carillion and retailer BHS.

The proposed voluntary code covers ethics, diversity, competence and lawfulness, as well as a commitment to cut carbon emissions and would supplement the existing corporate governance code administered by regulator, the Financial Reporting Council (FRC), and general legal duties under UK company law.

"There is a risk that each new corporate scandal or collapse will renew pressure on the government to impose prescriptive regulatory obligations relating to directorship," said Roger Barker, the IoD's director of policy and governance.

The IoD said all company directors should sign up to its proposed code, which would be administered by industry rather than a regulator or government.

"A whistleblowing process could be established to allow the reporting of poor conduct. An appropriate investigations and sanctions process would also need to be defined," the IoD said.

Following the collapse of Carillion, the FRC is planning to strengthen its own corporate governance code to make directors more accountable for financial statements, modelled on the U.S. Sarbanes-Oxley rules.

Small businesses are being paid late but they have more power than they think???

The most recent survey of small businesses carried out by the Federation of Small Businesses has found that at least a third of small businesses have seen late payment of invoices increase over the last three months.

Its new chair, Martin McTague, has called on the Government to include in the long-delayed audit reforms a requirement for a board-level role with responsibility for payments.

Small Business Commissioner Liz Barclay has urged small firms to be more “brave” and reject unreasonable payment terms.

She said: “Some small businesses are beginning to say, ‘No, I’ll walk away. I’m not accepting 90 days’.”

She argues that small businesses have more power than they think because they drive the success of larger companies and the latter “are putting their reputations on the line by failing to pay smaller suppliers on time.”.

Fine words, but can you afford to walk away?

Perhaps the question should be “can you afford not to walk away?”

After all, if you have done work for a larger company and they are delaying to pay for it, then you are effectively giving away your services for free, and your business still has all its own costs to pay.

Why should you risk insolvency in order to prop up a larger business?

For anyone interested in psychology or who can spare 45 minutes to take part in a psychology study???

My son, Laurence, is doing a Masters in Psychology at Bristol University with view to going on to do a PhD in the subject.

For his dissertation project he has designed a study to investigate how the cognitive processes that underlie different personality traits interact with trait mindfulness (how mindful someone tends to be on average). The idea is this research should help contribute to our understanding of psychological wellbeing and help improve the effectiveness of mindfulness treatment programs.

It’s an online research experiment so it can be taken anywhere that is convenient. If you’re able to help out by taking the test he’d be incredibly grateful for the help.

He’d also be very happy to send out the final research report to anyone that’s interested.

As background, most of us are busy and it can be a challenge to find time for reflection and mindfulness. In this regard, the experiment should be both interesting and very relaxing, especially if you haven’t tried meditation before.?

The test takes about 45 minutes and comprises two parts:?

1. A breath-focused meditation experiment where you’ll be pressing buttons in time with your breathing; followed by?
2. 4 personality questionnaires

Before beginning the experiment, further explanation of what to expect is provided along with notices and a compliance questionnaire since it conforms to research and ethical guidelines. These include reassurance that the data collected is anonymous and no names or personal contact information is gathered. Each participant is assigned a random number ID so know personal details can be linked to anyone taking part.

You can take the test wherever or whenever you like (as long as you can concentrate quietly for 45 minutes). You’ll just need a laptop or computer or any device which has a keyboard connected to it for the button presses during the meditation test.??

Link to the experiment ->??WILL BE POSTED IN THE COMMENTS SECTION OF THE LINKEDIN POST

If you want to ask Laurence any questions or would like to be added to the mailing list to receive the research report feel free to email him at [email protected]

Having done the experiment, I learnt quite a lot about myself and hope you will find it similarly insightful.

If you feel able, also please consider passing this link on as Laurence needs a sufficient number of participants to make the experiment statistically credible and needs all the help he can get.

Huge thanks in advance if you are able to help!

About the Author

Tony Groom?is a turnaround and?restructuring professional with?K2 Business Partners,?a firm that invests in companies that have committed boards and assets that others find difficult to value.??

“As a turnaround investor, I back Directors of industrial and manufacturing companies who are facing a crisis. I bring an understanding of business as a Director and Shareholder of the many businesses and turnarounds that I have helped make successful.”?

About K2 Business Partners?

K2 Business Partners?are a small team of turnaround investors who put their money where their mouth is by backing directors and companies with ￡3m-￡20m turnover with assets that other investors find difficult to value.?

K2 don’t generally sell out and are in it for the long haul!

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