ISSUE 05 | 2022
WHAT HAPPENS AFTER WHAT COMES NEXT? PROPELLING YOUR INNOVATION ENGINE FORWARD A ROADMAP TO SELLING YOUR BUSINESS
HAZLEWOODS
BEYOND THE HORIZON
ABOUT US Hazlewoods is one of the UK’s Top 30 independent Chartered Accountants and Business Advisers, taking pride in our highly personal, partner-led service, specialist sector expertise, strong values and new ideas. Hazlewoods and Hazlewoods Financial Planning has provided expert accountancy, tax, audit, financial and business advice to individuals and businesses of all shapes and sizes since the practice was founded by Marcus Hazlewood in 1919. We have over 400 experts in our Gloucestershire offices, who work with our clients locally, nationally and internationally.
Cheltenham office: Windsor House, Bayshill Road, Cheltenham, GL50 3AT Tel: 01242 237661 Staverton office: Staverton Court, Staverton, Cheltenham, GL51 0UX Tel: 01242 680000
Welcome.. FEATURES
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BUSINESS EXPERTS
Five experts from across Gloucestershire give their thoughts and predictions on what the future might hold for businesses.
WHAT HAPPENS AFTER WHAT COMES NEXT?
Internationally recognised futurist, Graeme Codrington, presented us with his thoughts on ‘preparing for a decade of disruption’ and what business leaders can do to stay ahead of the changes.
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UK GROWTH RATE
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HELPING YOUR BUSINESS SAIL INTO THE HORIZON
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SUCCESSION
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Just 175 UK companies have grown their revenue 20% or more in each of the last five years. Find out more from Hazlewoods research and results.
Learn more about implementing effective KPIs that can help turn your business goals into a reality. Our three succession articles take a look at succession within the sectors, cashflow modelling and dealing with litigation when it arises.
A ROADMAP TO SELLING YOUR BUSINESS
Is 2022 the year you decide to sell your business, tempted by new and exciting opportunities on the horizon? Our roadmap helps you to understand the full process and what is involved.
#HAZLEWOODSPEOPLE
With people at the heart of everything we do, find out more about some of those who make Hazlewoods.
The theme for our magazine this spring is ‘Beyond the horizon’ which seems highly appropriate and a positive message to inspire us all to look forward with optimism at the opportunities available in the coming months. With that in mind, our business advisers have produced some fascinating topics this month with a focus on innovation, growth, planning for the future and succession across our business features. You may have noticed that our front cover is an incredible piece of artwork designed by a Pate’s Grammar School year 8 student. We are proud to support our local communities at Hazlewoods and were inundated with entries to our art competition with the school to win the spot on the cover; you can see some more of our favourites in the magazine. Towards the end of this issue we have an end of year update from our charity of the year, Severn Freewheelers. They have seen a dramatic increase in demand for their services over the last two years, which we have proudly supported by raising money to purchase a new blood and organ delivery motorcycle. With all best wishes for the success of your plans over the coming months, and we look forward to continuing to work with you. Jon
JON CARTWRIGHT Partner 01242 237661 jon.cartwright@hazlewoods.co.uk
Hazlewoods Magazine - Spring 2022
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BUSINESS
EXPERTS Looking forward: a time of opportunity and innovation Ahead of our event with futurist Graeme Codrington in the autumn, we spoke to a range of business experts from across Gloucestershire, to get their opinions on what the future holds for businesses.
They took a look back at how things had changed from March 2020 and then gave us their thoughts and predictions for the opportunities that may lie ahead.
STEWART BARNES
Managing Director, QuoLux
In 2020, business owners and leaders were faced with a technological challenge. There are lots of great technologies out there so being able to bring those together and then use them in a way that helps your organisation is something that we and many others embraced. Over the next decade, business leaders need to look to developing their organisations and, more importantly, developing their people. As business leaders, we need to be seen to be investing in
our people and engaging with them. Online learning has a part to play here. The vast majority of companies are services which means that they are full of knowledge workers; even manufacturing and engineering businesses with plants have people who leave the business every working day, so the talent is walking out the door. Leaders need to make sure that the knowledge walks back in the door by developing fully motivated and energised people who want to improve and make the next day better.
ANDY BATES
CFO and Vice Principal, Gloucestershire College
Our main aim is to make sure that Gloucestershire has the skills and the people it needs to grow and to be prosperous. As we all know at the moment finding staff with the right skills is a huge problem; over the next few years we need to look at how we can upskill adults and young people in those industries that that we need. As a county we need to look at
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whether we are offering enough work experience places or apprenticeships to give those young people the first step on the ladder. Companies will need to plan a bit more in advance around their staffing requirements; I think we have relied too much in the past on fishing in the same pool of talent - we need to really grow the size of that pool!
RUTH DOOLEY
Partner, Hazlewoods / Chair, GFirst LEP
We know that the Government is looking to move to a higher skilled and higher wage economy and that is part of the transition towards improving productivity of businesses. Before lockdown, GFirst LEP put together what was called the local industrial strategy; to produce that document we interviewed over 5,000 young people in the county to see what their priorities were and what their views were for the future. One of the themes was flexible working that I think has come upon us much quicker than anyone would have ever anticipated. I think there will be a real shift towards
more homeworking overall and, therefore, the technology that needs to go with that. There’s going to be a lot of pressure on businesses to conform to the net zero agenda in the future. To me, green will make business sense; I read that of the top 200 entities in the world, 150 of them are corporates and that Amazon is bigger than New Zealand, so the shift has got to come from business, it’s got to be business that drives this to make it happen. As far as Gloucestershire is concerned our exciting project is really cyber and agri-tech and we’re already seeing lots of activity across the county towards the cyber agenda.
MIKE GOODE
Managing Director, GB Solutions
As a recruitment business at the start of the pandemic, we were gearing up to have an influx of candidates and not too many opportunities for them. The reality has been the absolute reverse. Over the last 12 months we have placed lots of people in companies where they have gone through an interview process having not really met any of their work colleagues face to face and have started a new job and been onboarded successfully and are making a contribution. It really is a different landscape.
Many, indeed most, businesses are now offering hybrid working as a norm because if they expect people to go in nine to five they are just going to lose that competitive advantage over the business next door. I think the way in which candidates are attracted and what candidate demands are will change massively in the near future. I can certainly see that the next generation that is coming into the workplace is going to be very heavily driven by the green agendas and businesses with real purpose.
SAM HOLLIDAY
Development Manager, FSB
I think what COVID-19 showed amongst the small business community, which we’ve always known, is how adaptable they are. A lot of people decided when they had a bit of time and they weren’t working traditionally that they maybe didn’t want to go back into the job they were doing before, so they started to think about something new. As a consequence, the federation of small businesses has actually seen our
membership remain strong because more and more people are coming in to start their own business again, which is very exciting. I read somewhere that the economy has come forward ten years because of COVID-19 and for some businesses that are ahead of the trend or can see the way things are moving they have set themselves up for a very good future. When the golden valley development in Cheltenham starts to take shape, this could be the digital capital of the UK, which is very exciting.
Hazlewoods Magazine - Spring 2022
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ANNABEL YR11
BEYOND 06
LOLA YR8
In autumn 2021, Hazlewoods invited Pate’s Grammar School students to take part in an art competition to design the front cover for the Hazlewoods magazine.
In line with the title of this issue, the students were given the brief of ‘Beyond’, and it was a topic that really captured their imaginations. From futuristic robots, to outer space, and horizon scenes to 3D creations, they came up with some wonderful interpretations. There was a fantastic entry across all year groups and the winners from each can be seen below, with the overall winner displayed on the cover. Marketing Director, Alison Townsend, said “It was incredible to see the vast array of ideas and works of art on display at Pate’s Grammar School, the students had clearly put a lot of time and effort into their pieces. Our winner really caught our eye for being so topical, vibrant, and gave a real sense of hope for life post-pandemic.”
Spring 2022 - Hazlewoods Magazine
RITIKA YR7
TOM YR13
BETHAN YR10
ELIZABETH YR9
MAY YR12
Hazlewoods Magazine - Spring 2022
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WHAT HAPPENS AFTER WHAT COMES NEXT? PREPARING FOR A DECADE OF DISRUPTION Towards the end of 2021, Hazlewoods invited business leaders to attend an interactive, online presentation with internationally recognised futurist, Graeme Codrington. Graeme joined us to help understand the forces that will shape our lives in the next 10 years, and how we can respond in order to confidently stay ahead of change. In this article, we summarise some of Graeme’s thoughts. PREPARE FOR DISRUPTION The next 10 years are likely to see more change than the last 30 or 40 years combined. We have spent the last few decades creating building blocks for change, such as the internet, smartphones, and different technologies, that are now going to accelerate transformation across industries. Furthermore, there are political changes, economic shifts, geopolitical upheaval, extreme weather pushing quickly towards a green agenda, and much more.
IT IS NOT ALL DOOM AND GLOOM There are some really positive changes coming in the next 10 years that are going to remarkably change our world. In the medical and pharmaceutical arena, COVID-19 has allowed medical development to speed up dramatically, and experts will be able to take some of the mRNA advances that have been proven in delivering vaccines and apply those in other areas. CRISPR was the technology that was awarded the Nobel Prize in Chemistry in 2020, and it is the next step beyond mRNA. Researchers hope to use it to alter human genes to eliminate diseases; create hardier plants; wipe out pathogens and more.
CHANGES IN THE RULES FOR SUCCESS AND FAILURE It is important to understand what the norms and standards are in an industry, i.e., how an industry is structured and how businesses operate within that, almost uniformly. If leaders look forward a decade, it is likely that at least some of these norms and standards will have changed. For example, by 2031 will professional services still be charging by the hour? Is it more likely that, between now and the end of the 2020s a lot of the work that needs to be done in accounting, tax and audit is going to be driven by machines? To prepare for the future, leaders should contemplate what might be a surprise to them in their industry that is not a surprise to anybody else who is looking from the outside in. The danger is that they fail to see what everybody else sees.
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1.
SPEND MORE TIME ON THE BALCONY
A simple idea borrowed from an adaptive leadership model developed by Professor Ron Heifetz at Harvard; there is the dance floor with people dancing - the dance is the work that has to be done. Leaders will spend most of their time dancing, but not enough time walking off the dance floor, climbing up the stairs and getting on the balcony. The ideal is gaining a big picture perspective, or a more strategic mindset. The challenge as a leader is making sure that time on the balcony is scheduled into your weekly activities and is not a random afterthought in your spare time, which it often can become.
2.
ASK BETTER QUESTIONS
Too often, questions in business are about tasks, or about the job that has to be done. The question often asked is: “Are we doing things right?” The better question to ask is: “Are we doing the right things?”
EXPECT DISRUPTION The disruption that is coming is not just going to happen around the edges of industries. Disruptions will cause more than price increases or decreases, or faster or slower operations. There are structural changes that will affect the core of all industries that businesses should be assessing and preparing for on a continual basis. The place to start, is to engineer agility and flexibility into the heart of the business with four key changes.
What are we measuring and what might be the unintended consequences of the things we measure? Why are we measuring what we measure? The benefit comes from taking a step back and asking whether what a business is doing is still appropriate in their changing industry.
3.
DISTRIBUTE DECISION MAKING IN YOUR BUSINESS
With an uncertain future, leaders need to ensure that people in their business have been given the responsibility to make decisions. To enable a business to be flexible and adaptable to change, everyone should feel that they have been given the authority to make responsive decisions to market changes at their level. A business without this will have more unnecessary meetings and decision-making by committee, wasting time and energy which could be spent elsewhere.
4.
EXPERIMENT MORE
Build a culture of experimentation and encourage people to try doing things differently. Rather than ‘thinking big’, try thinking small. Small experiments, not big business projects that will be expensive if they fail, will help to build adaptability in an uncertain time. In conclusion, the last two years have clearly demonstrated that we cannot predict the future with clarity, but we can prepare by engineering adaptability and innovation into the DNA of our businesses. To make sure you are receiving invitations to our events, sign up here: hazlewoods.co.uk/preference-centre
Hazlewoods Magazine - Spring 2022
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JUST 175 UK COMPANIES HAVE GROWN THEIR REVENUE 20% OR MORE IN EACH OF LAST FIVE YEARS Study shows the huge difficulty in maintaining rapid growth rates. Technology companies make up over a quarter of the 175 businesses.
Just 175, or approximately 0.0007%, of all UK companies* have managed to grow their revenue by 20% or more in each of the last five yearsaccording to our recent research. This shows the difficulties in producing fast-growing companies that can maintain significant growth rates over the medium and long term. Some commentators have said that the UK, unlike the US, is not producing enough companies like Amazon or Google which have been able to deliver fast and sustainable growth year after year. Our study also shows that out of the 240,000* private sector UK companies in the study, only around 1,000, or 0.004%, have managed 10% or more revenue growth in each of last five years. Ryan Hancock, Director says: “Being able to continue growing year after year is a major challenge for any business. Our study shows that only a very small number are able to achieve this consistently.” “Perhaps there needs to be an even more deliberate focus from the Government on helping UK businesses scale up and continue their trajectory of growth.”
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“The UK has a lot of success stories but the UK economy would benefit if we had even more.” As the Government attempts to manage its pandemic debt, some tax reliefs that are vital to businesses and entrepreneurs, such as the popular Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may be under threat should the CGT rate increase from 20%. This may disincentivise entrepreneurs from continuing to invest in and grow their businesses as they would have to pay a higher tax liability on the eventual sale of their business. The widespread difficulty for UK companies in maintaining fast growth rates shows how challenging it is to maintain a growth trajectory without long-term strategic planning and equity investment. Many of the companies that have sustained 20% growth for five years or more have been private equity and venture capital-backed businesses. Challenges which UK businesses may face include a smaller talent pool, particularly for SMEs in the science and technology sectors, compared to the likes of the US.
Of the 175 UK companies that have been able to grow their revenue 20% or more, around a quarter (44) companies are technology companies, Hazlewoods research shows.
“The UK is home to the some of the most innovative companies in the world with exciting growth trajectories ahead. However, capturing that growth at a significant pace every year is not an easy task.”
A significant number of these are fintechs. This includes payments giant Wise, which has managed to grow turnover by an average of 75.3% per year over the last five years, and digital wealth manager Nutmeg, which has grown its revenue by an average rate of 50% per year (although Nutmeg have now been acquired by JPMorgan).
“Perhaps we need a few more high-profile business leaders like Jeff Bezos, Mark Zuckerberg or Steve Jobs that have acted as role models in the US and inspired more entrepreneurs to keep scaling up their business rather than seeking an early exit.”
The UK and in particular London now has a well-established reputation as a global leader for fintech businesses. Venture-capital firms invested $4.57 billion in UK-based fintech companies last year, making the country second only to the US globally in terms of venture capital fintech investment*.
* UK companies with annual revenue of at least £250,000. The number of companies that currently have a turnover of over £250,000 and five years’ data on revenues means the sample size of this study is 240,000 companies.
Our research also shows several UK video game companies among the list of 175. The UK is home to a rapidly expanding video games industry which has seen major revenue growth. This includes British video game companies Keywords Studios, Sumo Digital and Team17, with average annual revenue growth of 53.5%, 39.5% and 54.6% respectively over the past five years.
** Source: Tech Nation annual report on UK tech sector.
RYAN HANCOCK Director 01242 680000 ryan.hancock@hazlewoods.co.uk
Ryan Hancock adds: “The UK’s tech sector has seen remarkable growth in the past five years, with the country starting to become a hotbed of talent and entrepreneurial vision.”
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HELPING YOUR BUSINESS
SAIL INTO THE HORIZON A common stumbling block for businesses trying to reach the horizon and beyond is that they lack a tactical plan for achieving their goals, or struggle to communicate such plans effectively throughout the business.
STEP
4
Implementing efficient key performance indicators (KPIs) can help turn your goals into a reality. HOW TO IDENTIFY AND SET KPIs FOR YOUR BUSINESS STEP
1
STEP
2
STEP
3
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IDENTIFY YOUR HIGH-LEVEL GOALS Think about where you are now and where you want to be in the future. Express your aspiration using ‘SMART’ goals. DECIDE WHAT KPIs TO SET Identify the key factors that are required to achieve your goals and ask yourself, ‘how can I measure each goal and make sure that it is attainable?’ Your KPIs should then work backwards from each objective, establishing key milestones and guideposts along the way. SHARE YOUR KPIs WITH YOUR STAFF It is crucial for all employees to be aware of and understand the business goals to ensure they know what they are working towards. Furthermore, it is essential to help employees recognise how their individual input contributes towards the overall goals of the business.
Spring 2022 - Hazlewoods Magazine
MONITOR AND SHARE PROGRESS ‘Where performance is measured performance improves’. Results should be shared and examined for the lessons that can be learned as well as the actions to be implemented. This should include both positive and negative items where appropriate. Through this process, the focus of the individuals and teams can be brought in line with the business’s goals. This step is critical to ensure your KPIs become a genuine guidepost for employees.
STEP
5
ENSURE ANY KPIs ARE REVIEWED AND UPDATED REGULARLY Businesses and markets change constantly and, where appropriate, your measures should too. A word of warning: obsessive focus on one aspect of the business could lead to decisions which have a negative impact on other areas. For example, a focus on top line turnover could lead to reduced margins as staff offer greater discounts to hit their performance metric. Furthermore, linking KPIs to incentives (such as a bonus, pay rise or promotion) can lead to detrimental consequences. The true purpose of a KPI is to help people inside the business know where they are in relation to where they want to be; they act like a compass. Once KPIs are linked to incentives, they can stop being a navigation tool and become a target an individual must hit. When this occurs, the people involved can become creative in how they can manipulate the information or their behaviour to ensure they receive the associated incentive.
HOW TO NAVIGATE UNCHARTED WATERS Setting out your KPIs and making a start is the ideal, however, it is not always that straight forward. The past two years, as well as more recent global events, have clearly demonstrated that anything can happen, and that businesses need to remain adaptable and be prepared for all eventualities. Taking a moment now to review your plans can help ensure your business is able to thrive in this changing economic climate. In times like these, business owners should home in on what is truly important to how their business operates. >
Start by identifying the key products or service lines that are essential to the success of your organisation.
Hazlewoods has a created a business plan template if you need help getting started with the process. Contact Senior Manager, Adam Shearing, to request a free, no obligation copy.
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Next, establish the key resources that are required to provide these offerings - this could be labour, capital assets, raw materials and/ or logistics.
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Third, create robust contingency plans to ensure the continued availability of each key resource as required. Thought should also be given to the best allocation of any resource if it is in short supply to ensure it is deployed in the most effective manner.
Business plans and KPIs will provide staff and management with direction and focus, helping them to set their sights on the horizon. Running a business without a robust plan or monitoring key metrics is akin to setting sail on a ship without a rudder or a destination. Utilising these things will help ensure everyone knows where they are, where they are going and what role each person must play in ensuring a successful voyage.
ADAM SHEARING Senior Manager 01242 680000 adam.shearing@hazlewoods.co.uk
Hazlewoods Magazine - Spring 2022
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PROPELLING
YOUR INNOVATION ENGINE FORWARD 69%
HLB surveyed international business leaders to understand how they plan to propel themselves forward in a future where innovation must be executed quickly and across multiple areas.
FUNDS TO FUEL INNOVATION Insufficient funding is one of the top three barriers cited by survey respondents when it comes to innovation. Industries such as hospitality and travel are still behind the recovery curve when compared to others such as finance and healthcare. With the economic prospects still uncertain, it is understandable that some businesses still feel reluctant to allocate more funds to research and development (R&D) activities.
55%
of business leaders have an allocated innovation budget
The majority of those who do have a dedicated budget, plan to fund it via cash flow or debt financing. However, economic uncertainty and inflation are top risks to growth this year and could impact both cash flow and the funding costs of debt financing. This means some businesses are exploring creative funding solutions such as government loans, grants or crowdfunding.
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Over the past couple of years, many businesses have made the most of new opportunities that came up at moments of disruption and change. However, as we overcome the COVID-19 pandemic and get back to business as usual, leaders will need to become more determined to innovate if they wish to advance their businesses further.
77%
Cash flow
28%
Seeking debt financing Raising equity funding
25%
Sharing the cost with sector partners
25%
+
–
only
of leaders think more rapid and effective innovation is critical to future growth
+
–
83%
of leaders believe market disruption motivates you to innovate
+
–
Hazlewoods is an independent member of HLB, a global network of independent professional accounting firms and business advisers, ready to assist you no matter where you want to do business.
Government/ NGO grants
17%
Not funding innova on ac vi es
16%
Government/ NGO loans
12%
Crowd-funding
11%
Finding time and space to innovate will be key over the course of this year. Creative thinking can happen anywhere, but in order for it to translate to innovation, ideas require support and follow-up action, both from the top and bottom of an organisation.
16%
27%
35% 26% 25%
34%
32% 19%
26%
Fear
Iner a
Keeping to status quo
Insufficient funding
Digital infrastructure
Capabili es of our people
Lack of quality data
Lack of vision
Lack of me
Culture
23%
Opera onal structure
For innovation to bear results, it requires continual action by employers and employees. Lack of time seems to be the major barrier to innovation, followed by a range of cultural factors.
Company poli cs
ORGANISATIONAL BARRIERS TO INNOVATION
19%
15%
INNOVATION AND TECHNOLOGY – THE CONNECTION
Whilst funding is a barrier for many businesses, true innovation cannot just be bought. People are also key but, similarly to funding, many businesses struggle to attract and retain the right talent.
Over the past couple of years, technology has proven to be a transformative force and many businesses now see technology and innovation as mutually dependent.
–
+
–
+
–
34%
cited access to talent as a significant risk to future growth
Competitive pay and benefits are no longer the only criteria on which employers are judged. Businesses need to excel when it comes to their company culture, vision, market positioning, workplace environment and environmental policy to attract talent capable of driving innovation.
53%
44%
of leaders name technology as a top focus area for innovation
believe access to emerging technologies is the main innovation enabler
+
–
57%
of survey respondents think capabilities of people are a top barrier to innovation
+
FINDING INNOVATORS AND RETAINING THEM
The pandemic has changed consumer preferences and habits. This represents an opportunity for businesses to reassess their perception of the industry and refocus their innovation strategies, using technology as a means to create value across areas such as product/service development, customer engagement, talent, sustainability and new business models.
CONCLUSION The response to the COVID-19 pandemic by governments and businesses around the globe has shown us just how quickly some enterprises can respond in a crisis. According to HLB, business leaders entered 2022 in high spirits.
+
–
73%
of business leaders feel more confident in their ability to innovate compared to pre-pandemic
scott.lawrence@hazlewoods.co.uk
+
–
84%
SCOTT LAWRENCE Partner
are confident in future business growth
As we emerge out of the pandemic, businesses will need to move away from a focus on preservation and towards more growth-focused activities to achieve rapid and effective innovation.
MARCO DONZELLI CEO, HLB hlb.global
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SUCCESSION ACROSS THE SECTORS Succession can have a variety of meanings; in the traditional sense, it is looking ahead to ‘what comes next’ when existing owners or shareholders decide that they want to leave the business. There can be any number of answers to this and the advice can differ greatly from business to business and equally across different industries and sectors. Some of our experts have taken time to consider just an example of succession in their sector and what considerations a business might need to make.
LEGAL Holding company route to facilitate shareholder exit Mike Ingmire, Director A shareholder in a company wished to exit the business and realise their investment. There was only one other shareholder (they each owned 50% of the company) who did not have the means to acquire the shareholding, but the company had sufficient retained profits and assets to fund the acquisition.
The main considerations and activity for this type of transaction are:
Ordinarily, the company might have acquired the shares from the exiting shareholder, but the conditions for this to be taxed as a capital gain were not met. Proceeding with a sale of shares to the company would have resulted in the outgoing shareholder paying income tax on the sale, which would have been particularly penal. The solution was to introduce a holding company into the ownership structure, and for the holding company to acquire the shares from both existing shareholders in exchange for a payment to the outgoing shareholder and an issue of new shares to the remaining shareholder.
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Establishing the best course of action to meet the needs of all parties
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Applying to HM Revenue & Customs for tax clearance
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Forming the holding company
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Documentation for the purchase of shares from the outgoing shareholder and for the for the exchange of shares for the remaining shareholder
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Dealing with the stamp duty office
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Updating the company’s registers and dealing with all Companies House filings
FARMS AND ESTATES Inheritance tax planning for the future of the family farm
VETS Selling a veterinary practice
Nicholas Smail, Partner
Rachel Vines, Director
A family agricultural business owned a 500-acre farm, farmed in hand, which included the main family home, a number of let cottages, various barns, some with potential development opportunities, as well as property away from the farm. The family wanted to keep the main house and as much of the farm in the family as possible, accepting that it will need to be split between two children. Due to the size of the main house it was unlikely to qualify for agricultural property relief. The prospect of succession meant that family had some difficult decisions to make, particularly in relation to the main house. The best outcome involved selling one property away from the farm and gifting cash and another property being settled on trust. A property with development potential was gifted prior to planning being obtained, ensuring the uplift in value occurred in the children’s hands. The main house was the most difficult to deal with due to personal ties, it will be gifted to one of the children and rented back. The remainder of the farm, including the let cottages, is a mainly trading business and should qualify for 100% business property relief. By taking time everyone has bought into the process and the potential inheritance tax savings are significant.
CHARITY Developing new leaders for charities from within
The owners of an established veterinary practice required advice regarding succession planning. The incumbent shareholders had started to think about their exit strategy and although they had not ruled out a sale to a corporate at some future date, they were keen for the practice to remain independent in the medium term as they had some key employees who they wanted to make shareholders. Our advice included the following: >
Valuation of the practice
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Consideration of affordability for the new shareholders
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Discussions around funding
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Capital gains tax advice for the incumbent shareholders
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Advice regarding an anti-embarrassment clause (should there be a sale to a corporate within a certain time frame post sale to the new shareholders)
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Liaising with the solicitors advising on the legal agreements including an updated shareholders agreement
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Tax efficient remuneration planning to include the new shareholders
The outcome of this project was that the existing shareholders were able to bring new owners into the business, realising some cash, but they have still left their future options open as regards a corporate sale with some protection over the goodwill value they have sold to the new shareholders.
Judith Carrington, Associate Director Some charities find it hard to plan for replacing their leaders, particularly smaller, founder-led charities that have developed from one person’s passion for a cause, but effective succession planning can help the switch run more smoothly. The benefits of forward planning cannot be overlooked when considering charity leadership succession. Using training to enhance the potential and skills of your people to become your charity’s future leaders can be an efficient and cost-effective activity. Growing from within is often found to be one of the preferred succession options for not-for-profit organisations. Knowing you will have developed the talent and have someone that fits with the charity ethos, culture, and has a passion for the business to drive it forward into the future will be a source of comfort for many exiting owners, trustees and other stakeholders. There should always be one or two people you are looking to develop into leadership positions. Challenges can sometimes arise with training and development, where charities have limited resources and so these costs is sidelined for more pressing expenditure, but it should be more of a priority in order to ensure the continuity of the charity.
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FINANCIAL PLANNING: CASHFLOW MODELLING Succession planning is a key part of most individual’s lives and takes many different forms, depending on their circumstances, including: >
Ensuring wealth is passed on to future generations tax efficiently
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Planning how and when to pass on or exit a business
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Making sure families are provided for if something happens to an individual
Whilst succession planning is an important part of one’s financial plan, often we can be so focused on the here and now that we struggle to make time to give this thought. This can lead to greater pressure when addressing it later down the line, to plans being rushed meaning we don’t get the best possible outcome or, in a worst case scenario, to this area never getting addressed.
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Often succession planning can be an emotional conversation to have, as it can involve planning for when we are no longer here, or perhaps discussing exiting a business that may have been a major part of our lives. However, by preparing earlier and taking the time to discuss your succession planning, you ensure that you are able to put in place a suitable strategy which aligns to your needs, aims and objectives. As we know, family and business dynamics can often be complex, meaning succession plans need to be detailed and take account of your individual circumstances. Because of this complexity, it can be difficult to visualise how our planning will look in reality and the impact this will have on you, your family and/or your business. To assist us in advising our clients on succession planning, we often use cash flow modelling software, which allows us to ‘paint a picture’ of their succession plan.
Through inputting some basic information regarding their circumstances, including income, expenditure, assets and debts, our cash flow modelling software can project their financial position and show how the decisions they make today will impact theirs and their family’s financial future. The software allows us to model various different scenarios, to help in devising an appropriate succession plan, which might include: >
Can I afford to gift money to my children?
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What age can I afford to exit my business?
>
Do I have enough protection in place to provide for my family if something happens to me?
If you are interested in seeing how cashflow modelling can help you, please contact
ANDY HOGARTH Associate Director 01242 680000 andy.hogarth@hazlewoods.co.uk
The software is based on well researched, detailed assumptions, and whilst the results cannot be guaranteed, they provide a good grounding upon which to build your plan.
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SUCCESSION AND LITIGATION Succession and succession issues can cause litigation to arise in different ways. In my many years of expert witness work I have seen a wide variety of types of case relating to succession one way or another. For this article, however, I will limit myself to describing three separate cases which relate to promissory estoppel, negligent IHT advice and a contested probate valuation.
PROMISSORY ESTOPPEL
PROFESSIONAL NEGLIGENCE
The farmer put his hand on his son’s shoulder as they gazed out over the fields, “One day my son all of this will be yours…”.
A farming widow, at the age of 92, approached an investment firm to try and reduce the inheritance tax (IHT) arising on her death which was expected to be substantial. She asked for planning that would reduce her liability by £800,000, without her having to give away any of her capital assets.
Dad, however, later developed dementia and there was no written record of his promise. Mum did not believe it had been made. Many years later, in the Court of Appeal, the learned judges decided that the promise had been made and relied upon and all the farming assets should be transferred to the son. The law in question here is known as ‘promissory estoppel’ and it was a case in which I had acted as a shadow expert for several years. The expertise required from me, by the solicitor for one of the parties, was my tax knowledge. At each stage of the process tax calculations were needed in respect of various scenarios. There were a considerable number of assets in the farming partnership as well as a trading company and other assets held outside of the partnership. I needed to look at capital gains tax, gift relief, inheritance tax, agricultural property relief, business property relief, income tax and stamp duty land tax issues. In addition to this the timing of the transfers was far from clear and the partnership accounts were not complete. Also, in the final court order no directions were given in respect of tax. It certainty took a lot of ‘cold towel over the head’ moments trying to sort out all of that!
From a review of the documentation it appeared that very few mitigation strategies were discussed. Only one IHT mitigation action was actually undertaken, which was to invest £800,000 in an Enterprise Investment Scheme type investment. After holding this investment for two years, this value was removed from the widow’s estate due to the availability of Business Property Relief (BPR) on her death. Unfortunately, however, there was an error in the advisers calculations as, although the value of the estate was reduced by £800,000, the IHT saving was 40% of this figure i.e. £320,000 rather than the £800,000 of IHT, the adviser thought would be saved. The adviser also appeared to have missed the planning opportunities potentially available as the widow was in a farming partnership with her son. The assets in this partnership were already exempt from IHT due to the availability of Agricultural Property. Investing in agricultural land through the partnership would therefore have put that value outside of her estate. This was without having to wait for two years (as was needed with the BPR investment), which at the age of 92, might have been thought to been sensible planning. In this case, the matter settled soon after my report was served.
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CONTENTIOUS PROBATE VALUATION Two solicitors had acted together in partnership for many years. They also jointly owned a small company and several investment properties. When one of them died I was asked to value the partnership and company for probate purposes which I duly did. The probate values were accepted by HMRC but a year later the probate solicitor approached me again as the remaining partner was contesting the estate valuation of all of the joint assets. The properties were not my concern as I am not a property valuer and the company was so small that it did not justify a dispute. After responding to a series of questions in respect of my valuation of the partnership I was asked to discuss the valuation principles with the other side’s expert. There were various items that she felt should reduce the valuation but as these mostly related to the period after the date of death I felt they were not relevant. She also disagreed with the multiple of profits I had used.
As usual with these types of discussion we managed to narrow the issues between us. We ended up with different opinions of a few points but suggested to our respective solicitors that the difference be split between the parties as the quantum did not justify further professional costs. Fortunately, the solicitors on both sides agreed and the matter was resolved. In matters of succession it is usually best to try and avoid issues arising that lead to litigation. This can often be achieved by receiving good professional advice on a timely basis. RUTH DOOLEY Head of Forensic Accounting and Litigation Support 01242 680000 ruth.dooley@hazlewoods.co.uk
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A ROADMAP TO
SELLING YOUR BUSINESS Is 2022 the year you decide to sell your business, tempted by new and exciting opportunities on the horizon – whether that be reinvesting in another business, taking a well-deserved break or even retiring? Take a look at our roadmap below, to understand the full process and what is involved.
5 Find a buyer
If you do not already have a purchaser (e.g. your existing management team), your advisers can research the market for good candidates.
Preparation 1
Take to market
Appoint professional help
Involving both corporate finance and legal advisers early will help to get your business in great shape and maximise value.
4
Create sales literature
3
Get a professional valuation
2
An attractive Information Memorandum will act like a sales brochure, giving you the chance to present your business in the best possible light to potential buyers.
Prepare for sale
Get your financials in order, remove nonessential costs, review your management structure to ensure that the business is not dependent on you, check that your order book is appealing to buyers and prepare forecasts to demonstrate growth potential.
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This is an art not a science. It is important to look at elements which may add value such as technology, know how and client relationships.
£
7
6
Complete due diligence
The purchaser will need to scrutinise your business before finalising the transaction and your professional advisers will manage this process. This can take time and being open and upfront from the outset is key to maintain trust.
Negotiate with the buyer
Your advisers will work to get the best deal on your behalf. Some purchasers may want to defer consideration to allow them to pay in stages or link the sale price to the performance of the business via an earn out. Make sure you are aware of all the options and their implications.
Complete the deal
8
9
Tax structuring
By constructing the deal in a tax-efficient manner, you can minimise tax and maximise profit.
Completion
Congratulations, your advisers will now push the deal over the line and you can focus on your future.
Post deal 10 Wealth management
Whatever your future objectives post-deal, Hazlewoods Financial Planning can support you in putting together a tailored plan to help meet them, using the proceeds in the most efficient way.
Our award-winning, partner-led Corporate Finance team completed 170 deals worth over £1 billion in 2021. If you would like tailored advice, please get in touch with one of our experts.
RICH GROVER Associate Director 01242 680000 rich.grover@hazlewoods.co.uk
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HEALTH AND SOCIAL CARE LEVY From 6 April 2022, employee’s and employer’s NIC along with dividend rates all increased by 1.25 percentage points. The NIC increase is a temporary measure for one year, before being separately classified as a 1.25% health and social care levy from April 2023. Individuals above state pension age, who are not currently required to pay NIC, will not be impacted this year but will be subject to the new levy from April 2023. To counteract this, the Chancellor announced that the threshold above which employee’s NIC would be payable would be increased to £12,570 (in line with the personal allowance) from July 2022. The employment allowance for employer’s NIC was also increased from £4,000 to £5,000 with effect from April 2022.
TRUST REGISTRATION SERVICE Since 2017 most trusts with a UK income tax, capital gains tax, inheritance tax or stamp duty land tax liability have been required to register under the trust registration service (TRS). The requirement to register has now been extended to all UK express trusts (regardless of whether they have a UK tax liability). There are certain exemptions for registering; however, the default position is that most UK trusts (and some offshore trusts) in existence will be required to register by 1 September 2022. Any trusts created after this date will have 90 days to register. Please get in touch if you would like clarification on whether a trust may need to be registered and/or if you require any assistance with the registration process.
SUPER DEDUCTION Budget 2021 introduced a new 130% super deduction for companies investing in new qualifying plant and machinery. The super deduction is available for expenditure incurred between 1 April 2021 and 31 March 2023. For accounting periods straddling 1 April 2023, an apportioned deduction will apply. For example, a company with a December year-end will receive a super deduction of 107.5% for the 2023 financial year. The rationale of this is that the corporation tax rate is also rising to 25%, so with a blended corporation tax rate for the year, the net impact should be similar overall. Timing of expenditure should be carefully considered, however, and in some cases potentially accelerated (for example where the small companies rate of 19% will apply to the company post March 2023). As part of the Chancellor’s spring statement, however, he did confirm that further cuts to taxes on business investments would be announced later in the year to take effect from April 2023 and we await further details on these measures.
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TEMPORARY REDUCED RATE OF VAT Since 1 October 2021, a temporary 12.5% rate of VAT has applied to certain supplies of hospitality, hotel accommodation and admissions to attractions. This was following the 5% rate first introduced in July 2020 for the same supplies and provided a gradual increase back towards the standard rate of VAT. From 1 April 2022, those supplies reverted to the standard rate of 20%. The spring statement also confirmed a temporary zero rate for VAT on the installation of energy saving materials in households including solar panels, heat pumps and insulation. This reduced rate will stay in place for a period of five years before reverting back to the current rate of 5%.
MAKING TAX DIGITAL FOR VAT Making Tax Digital (MTD) for VAT applies to all VAT registered businesses from 1 April 2022, including those voluntarily registered for VAT. Prior to this date, only businesses with turnover exceeding the VAT threshold of £85,000 were required to comply, but now many small business owners, self-employed consultants, property landlords and other professionals will also be within scope. Accounting systems should be looked at now, if they haven’t already, to ensure a smooth transition and suitable software should be sourced as appropriate to enable MTD compliant filings.
NICK HAINES Partner 01242 237661 nick.haines@hazlewoods.co.uk
RUTH DOOLEY Partner 01242 680000 ruth.dooley@hazlewoods.co.uk
TOM WOODCOCK Partner 01242 237661 tom.woodcock@hazlewoods.co.uk
DAVID CLIFT Partner 01242 680000 david.clift@hazlewoods.co.uk
NICHOLAS SMAIL Partner 01242 680000 nicholas.smail@hazlewoods.co.uk
PETER WOODALL Partner 01242 680000 peter.woodall@hazlewoods.co.uk
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UNSUNG HEROES OF 2021 SPOTLIGHT ON OUR CHARITY OF THE YEAR 2021 saw our continued support for charity of the year, Severn Freewheelers, bringing our current total to a fantastic £20,000! For the lifesaving charity, this means they have enough funds to purchase a brand new motorbike for the Gloucester team. Since 2007 the fleet has grown from 20 members and three bikes, to over 150 members, ten bikes and two cars! As you may know, Severn Freewheelers is a group of advanced motorcyclists providing a free out-ofhours courier service for hospitals in Gloucestershire, Worcestershire, North Wiltshire and Herefordshire who carry whole blood, pathology samples, patient
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scans/x-rays, human milk - in fact any medical essentials between hospitals in the area. The increased workload for the charity has brought with it increased risk. Last year saw three bikes taken off the road through no fault of the riders meaning our support is more important than ever. All riders involved are well and suffered no serious injuries. Per year, Severn Freewheelers require approximately £70,000 to keep their service running and save the NHS more than £450,000. Riders, volunteers and dispatchers work quietly in the background to provide vital support to those in the county and surrounding areas.
For the secret mathematician in all of us, let us have a look at some stats:
2021
2007 - 2021
JOBS
JOBS
8,725
61,821
247,208
2,207,000
MILES
MILES
A WORD FROM OUR PEOPLE Social Partner, Andy Harris: “It has been great to be able to work with Severn Freewheelers, and we look forward to shining more light on their outstanding work for the final few months as we approach the end of our partnership with them.”
GEOFF BROWN - Coordinator/Dispatcher (approx. 3000 jobs):
WHAT HAVE WE BEEN UP TO? Hazlewoods staff are always up for a fundraising challenge, so our goal of a new motorbike was met with some serious determination. Activities have included an outdoor cinema for staff, family and friends; our first in person quiz since 2019 where the Severn Freewheelers team not only won but smashed what has been titled the most challenging quiz yet; the ongoing 100 Club where one winner is selected at random each month to win half the pot of entries; the sorely missed tuck shop which made its grand return in June of last year; and of course the Christmas raffle which saw one lucky winner claim the top prize for a two night luxury trip to Paris! Some staff in particular set their own fundraising goals completing various challenges including Associate Director, Rich Grover’s Cheltenham Half Marathon raising over £700 and Partner, Suzanne Headington’s Chillswim Ullswater Challenge raising over £1,600. All of these activities plus ongoing support from our fantastic clients has helped us reach our growing fundraising total.
“For me there is a sense of satisfaction when each individual plan comes together. There is great fulfilment when you have solved a problem for a nurse on a ward needing to get meds to a patient recently discharged, or the pharmacist who needs drugs for a patient and they are out of stock, or the lab technician who needs a specialist test undertaken for a seriously ill patient at a remote site. At times it can feel like being a cross between a bomb aimer and a detective. When we deliver meds to private addresses this can be ‘The Old Rectory, village in Wiltshire, Postcode’. The postcode gets the rider close but at night with no streetlights it is sometimes not obvious and the coordinator has to step in to guide the rider.”
TIM KIDWELL - Rider (222 jobs covering approx. 8000 miles): “Severn Freewheelers allows motorbike enthusiasts to give something back to the NHS and society as a whole. On the plus side, riders know that they are providing a valuable, yet free, service to the four NHS Trusts involved. There are amazingly positive people involved in all parts of the operation - from nurses to patients - offering a smile and a warm welcome to riders. On the minus side, it’s often cold and wet with some very long hours. However, on the whole, why wouldn’t anyone want to ride someone else’s (great) bike on someone else’s fuel and insurance in a beautiful part of the country, whilst doing something really worthwhile?” If you would like to join us in our fundraising efforts, visit our GoFundMe page here. bit.ly/Hazlewoods_charity
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Meet our
#HAZLEWOODSPEOPLE 28
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People are at the heart of everything we do, which is why we enjoy getting to know more about those who make Hazlewoods. We take pride in our strong values, innovative approach and new ideas, all coming together to inspire the future generation of Hazlewoods accountants and the people we work with.
LEE BRINKWORTH - Manager What do you like about your job? I enjoy working within the dental sector and building up specialist knowledge. I like getting to know lots of people, seeing what clients do, where they work and how their businesses operate from the inside. Can you share the best career lesson you have learned so far? Just speak to as many people as you can. I’ve learnt it’s far better to pick up the phone and have a chat. You can get a lot more from a 10-minute phone call than you can with 100 emails.
CAMERON POWELL - Assistant Manager What do you enjoy about working in corporate finance? Being part of the Corporate Finance team has offered a fast paced and dynamic working environment, with great exposure to a range of sectors and M&A transactions. The opportunity to work closely with Directors, Partners and clients has really fast-tracked my professional development.
JESS JONES - Associate Manager What is a role in audit like? There is never a dull moment in audit! It’s more than just spreadsheets and numbers – it’s also about problem solving, meeting new people and critical thinking. One of the best things for me is that no two days are the same. With a wide range of clients from manufacturing to construction, retail to food producers, we are constantly learning about different industries.
LAURENCE BEARD - Facilities Manager Tell us a bit about working in the Hazlewoods buildings and grounds. Both the Cheltenham and Staverton offices are amazing, historical buildings, with one in the heart of the town and the other nestled in 24 acres of countryside. It might seem strange, but I’ve always seen buildings as living objects. They each have a history and are filled with stories. Therefore, having the opportunity to make the Hazlewoods offices better each day and preserve them for future generations of employees, makes me feel good!
EMMA BOUTCHER - Associate Director What do you like most about working with SME businesses? I work with SMEs across a range of sectors, so I love the variety that comes with it and am able to learn a lot about the different industries. I’m able to accommodate the business owner’s journey and enjoy tailoring my support to complement their specific goals. Why Hazlewoods? Hazlewoods is a large and reputable firm but has a ‘smaller’ feel to it, in a positive way! Working in teams is great because you can really form proper relationships, but you also have the larger network around you for support and specialist expertise.
HANNAH GRIFFIN - Associate Partner How did your forensic career begin and what made you pursue that particular service? I’d always had an interest in the police force and crime, from watching programmes like Silent Witness. The collapse of Barings Bank in the 90s fascinated me and whetted my appetite to find out more about forensic accounting. In my early years as a forensic accountant, I worked on several criminal cases but ended up preferring civil cases. However, that’s where I learnt the importance of being fluid, accepting of change and remaining open-minded to new opportunities.
ALEX WIGGINS - Head of IT Tell us about the IT department. Our modern IT infrastructure supports a wide range of business applications, with support and investment from the partners. The team is busy and at times challenging, which has equipped me with the skills to solve problems and make quick decisions. What do you like about Hazlewoods? Hazlewoods recognises its employees and rewards them for their long service, loyalty and commitment. After working for over 10 years here, I recently received an award which was a welcome surprise and acknowledgement of my career so far.
If you would like to join our #Hazlewoodspeople, take a look at all of our current vacancies here: hazlewoods.co.uk/careers
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CONTRIBUTORS THIS ISSUE’S AUTHORS
ANDY HARRIS Partner 01242 237661 andy.harris@hazlewoods.co.uk
MIKE INGMIRE Director 01242 237661 mike.ingmire@hazlewoods.co.uk
NICHOLAS SMAIL Partner 01242 680000 nicholas.smail@hazlewoods.co.uk
JUDITH CARRINGTON Associate Director 01242 680000 judith.carrington@hazlewoods.co.uk
RACHEL VINES Associate Director 01242 680000 rachel.vines@hazlewoods.co.uk
ANDY HOGARTH Associate Director 01242 680000 andy.hogarth@hazlewoods.co.uk
JOIN THE CONVERSATION Follow us for updates at your fingertips, so you can read the latest news and views on the go! 30
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RYAN HANCOCK Director 01242 680000 ryan.hancock@hazlewoods.co.uk
SCOTT LAWRENCE Partner 01242 680000 scott.lawrence@hazlewoods.co.uk
ADAM SHEARING Senior Manager 01242 680000 adam.shearing@hazlewoods.co.uk
RUTH DOOLEY Partner 01242 680000 ruth.dooley@hazlewoods.co.uk
RICH GROVER Associate Director 01242 680000 rich.grover@hazlewoods.co.uk
NICK HAINES Partner 01242 237661 nick.haines@hazlewoods.co.uk
@Hazlewoods
@Hazlewoods
@Hazlewoods
@Hazlewoods_accountants
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Spring 2022
Cheltenham office: Windsor House, Bayshill Road, Cheltenham, GL50 3AT Tel: 01242 237661
Staverton office: Staverton Court, Staverton, Cheltenham, GL51 0UX Tel: 01242 680000
This newsletter has been prepared as a guide to topics of current financial business interests. We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of the material can be accepted by us. Hazlewoods LLP is a Limited Liability Partnership registered in England and Wales with number OC311817. Registered office: Staverton Court, Staverton, Cheltenham, Gloucestershire, GL51 0UX. A list of LLP partners is available for inspection at each office. Hazlewoods LLP is registered to carry on audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England & Wales.
www.hazlewoods.co.uk
@Hazlewoods
