Tag Archive | "spending cuts"

Many SMEs in construction sector are struggling to survive

Accountants for contractors with clients in the construction sector may be unsurprised at the news that SMEs in this sector are having difficulties recovering from the recession.

Baker Tilly has surveyed construction SMEs whose annual turnover is between £5 million and £25 million and discovered that more than 25% of them have seen sales decrease by at least 20%.

The study also found that one in six construction SMEs is at risk of failing to repay its short and medium term debts. Furthermore, nearly 33% have seen their Profit Before Tax decrease by more than 50%. Despite this, liquidity in the construction sector is stronger than it is for SMEs across all sectors.

Mark Wilson, one of Baker Tilly’s partners, explained that some construction companies may have cash reserves but a lot will find the cash starts to run out as sales and profits continue to decrease. Slashing prices to win contracts does not help the bottom line and is not a sustainable solution in the long term.

He went on to say that the impact of government spending cuts and rising costs will increase the pressure on small firms in the construction sector. The cost of raw materials is rising throughout the world and this is hitting construction companies’ profits harder than firms in other sectors.

Denis Baker, the chief executive of Company Watch, also commented on the research findings saying that as well as highlighting liquidity issues, the fall in profitability and revenues will concern contractors, clients and suppliers who should take a proactive role in minimising their exposure to possible construction company failures.

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Cost saving ideas can win the day for contractor accountants

Contractor accountants may want to consider working alongside their clients to come up with cost saving measures after the ICAEW said this year promises to be extremely difficult financially for many companies.

The combination of low consumer confidence and public sector spending cuts will have a considerable impact on their revenue generating ability, the Institute warns.

ICAEW’s head of enterprise, Clive Lewis, said that despite the recent decrease, inflation is still high, but this is only one of many pressures facing companies at the moment.

In order to offset increased costs, the Institute has put forward a number of suggestions which could interest accountants, such as whether profit margins can be increased. It also suggests re-examining the fundamentals of products and services but warns against switching to cheap materials which could damage a brand and affect sales.

A lot of suppliers are offering incentives and there could be benefits to changing. There are now new suppliers with competitive prices in the market place and things could have changed significantly since a company’s supplier base was last reviewed.

Businesses should also tackle overheads such as energy costs, human resources and space. Significant improvements can be gleaned by more effective organisation of workloads and workspaces.

Leveraging the power of technology enables employees to work better, reduces the need for meetings and cuts down on communication costs, the Institute advises and companies can further cut down by taking advantage of all the tax allowances and reliefs they are entitled to.

KPMG recently reported that businesses could see £90bn added to their costs as the savings they made during the recession get wiped out. 80% of business leaders say the cost of finance is outstripping their cost-cutting efforts, whilst 76% blame salary inflation.

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680 people apply for 440 voluntary redundancies!

440 jobs are to be lost at Official Receiver offices throughout the UK, according to the Public and Commercial Services Union.

What might surprise you is that 680 people have applied to take voluntary redundancy since the cuts were announced to staff. That would suggest that at a large portion of the workforce is dissatisfied! This theory seems to be backed up by the high percentage of absenteeism last year.

There are 36 Official Receiver offices in the UK that deal with bankruptcies and company liquidations. The department expects to see a decrease in bankruptcies this year but personal insolvency experts disagree saying they will remain at record levels as the government spending cuts take effect.

The latest headcount at the Insolvency Service, taken at the end of last March, was 3,132 including agency workers and contractors.

Meanwhile, R3, the insolvency trade body, has condemned the government for not taking action against company directors who are guilty of dishonest and fraudulent activities. The number of disqualified directors has dropped by 25% in the past eight years.

R3 claims that insolvency practitioners submitted in excess of 7,000 reports to the Insolvency Service in 2010 and yet fewer than 1,400 of these resulted in a director’s disqualification. It is therefore calling on the Insolvency Service to increase its efforts to weed out dishonest company officials.

The trade body blames a lack of government resources for the service’s failings and expressed concern that more complex cases could be overlooked. Steven Law, the president of R3, said the trade body would like to help the Insolvency Service implement an effective system that ensures all cases are pursued.

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What does 2011 hold for contractor accountants?

The Autumn Statement from the government showed a revised prediction for economic growth next year. Previously the coalition has predicted growth of 2.3%, but this figure has now been lowered to 2.1%.

However, the IoD disagrees with this, claiming that economic growth in 2011 will be much lower. It likened the recovery cycle to a square root sign which has witnessed a temporary spurt in 2010 but will level off next year.

The IoD commented that the Comprehensive Spending Review has caused too much doom and gloom and the UK needs to realise that there are also other weaknesses in the economy. Lower than expected growth could cause George Osborne to increase taxes, a move which would affect contractor accountants and other freelancers. In fact, if the government’s predictions for GDP are accurate, the chancellor will have to choose between tax increases or further spending cuts if the coalition is to meet its budget deficit targets.

In other related news – although the government has committed to reducing corporation tax, the IoD claims that the new moves still do not go far enough towards attracting more foreign invest in the UK.

The IoD’s head of taxation, Richard Baron, said that whilst the Institute welcomed the fact corporation tax is set to reduce to 24% that still leaves the UK in the bottom half of the list of countries with an attractive rate.

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Many businesses are upbeat about government spending cuts

95% of British business leaders and contractor accountants have a clear conscience about making staff cuts in the next few months according to statistics from Abbey Legal Protection.

While that leaves just 5% of bosses stressing about downsizing, 31% of employees are concerned that their job might be in jeopardy.

Andrew Hawes, one of the co-founders of manufacturing consultancy Newton, said that most CEOs recognise that cuts are inevitable and tough measures need to be taken to ensure their firm survives.

We are still waiting to hear the results of the government’s Comprehensive Spending Review but almost three quarters of SMEs and contractors agree that public spending cuts are essential.

The FSB intends to inform the Conservative party conference that the coalition should reduce the budget for ‘direct’ business support to £500m from the current £1.9bn and concentrate on micro business spending.

The lobby group thinks that business support receives too much funding and of that, micro firms only receive 5% of the money. It would also like to see the NICs holiday for new businesses extended to all firms, an increase in the VAT threshold to £90,000 and the privatisation of the Capital for Enterprise finance initiative.

Meanwhile, leading players in British industry have differing views of the upcoming spending cuts.

Babcock, the defence group, believes the clampdown in the public sector will lead to more projects being outsourced. It says it has a healthy pipeline of bids both at home and abroad and an order book currently standing at £12 billion.

Smiths, on the other hand, said it will be increasing investment in new products with a higher margin as it warned of the short to medium term challenges of achieving sales growth.

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Spending cuts hit the Treasury

The Treasury is set to lose around 25% of its workforce due to the Chancellor’s spending cuts.

The good news for the existing Treasury workforce is that this will be achieved by natural wastage with no further recruitment, as opposed to mass redundancies.

By the middle of this month, George Osborne will have settled the budgets for some of the government departments, including culture, environment, justice and transport, as well as scaling back the role his own department and the financial services function play. He’s even proposing to move staff to smaller desks in order to squeeze more people into his HQ thus saving money on rent.

Over the next four years the Treasury department will lose about 350 staff members through natural attrition bringing the number down to 1,000.

The Chancellor’s willingness to impose cuts in his own department should strengthen his hand when it comes to negotiating with other departments.

One of George Osborne’s colleagues said they would be focusing on macro analysis and spending control rather than attempting to second guess the moves of other departments.

The comprehensive spending review will cut between 25% and 40% from the majority of other government departments. The biggest challenges facing the Chancellor will be defence and welfare. Transport could also be a problem as Boris Johnson, the Mayor of London, is battling with Philip Hammond, the Transport Secretary over Crossrail and upgrades to the Tube. Hammond also wants to see a cut in the £1 billion that subsidises free travel for children, the unemployed and injured war veterans.

Meanwhile, a treasury spokesman said the department would not get drawn into the spending review negotiations of individual departments; each of which have been told to reduce their admin costs by about a third over the next four years.

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HMRC choose not to produce Time To Pay data

HMRC has postponed releasing any Time to Pay data while it reviews the release of statistical information. A spokesman from the Revenue said that he could not say how long the review would take.

The Time to Pay arrangements allow businesses to defer tax payments and were set up during the credit crunch as a lifeline for companies that were struggling to meet their tax liabilities.

The president of the UK200Group, Colin Howe, remarked that the Business Secretary, Vince Cable, had recently told the Institute of Directors that his department had instructed the Revenue to continue to ensure that it would be easy for applicants to obtain Time to Pay arrangements. However, if HMRC doesn’t publish statistics, we won’t know if that is happening.

Tax expert Richard Mannion from Smith & Williamson said that the review doesn’t tie-up with HMRC’s message that TTP works. He believes that government spending cuts could be the cause of the review.

In the first 15 months of the scheme, 300,000 Time to Pay arrangements were set up, allowing £5.13bn worth of taxes to be deferred.

Meanwhile, the Regulation Policy Committee is calling for vigorous, independent scrutiny of all new business regulations. Vince Cable announced last week that the ‘one in, one out’ policy for new regulations will come into force at the beginning of September and the RPC would like to see Whitehall produce a robust analysis of all possible alternatives and implementation cost estimates prior to the formation of new regulations.

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