Echo: July 2011

A change to the way the financial sector operates is causing some consternation amongst a certain type of IFA.
The Retail Distribution Review (RDR) is the Financial Service Authority (FSA) flexing its muscles to force IFAs to become more professional.  IFAs without the right qualifications to survive in the post-apocalyptic RDR environment, have realised the writing is on the wall as far as exorbitant levels of upfront commission is concerned. Keen to make the most of the next few years, ‘salespeople’ are getting out and about whilst they still can and heavily flogging products and investments.

Adrian Kidd said, “Pushing Investment Bonds that pay a handsome commission is just one of the areas we have heard of that is being heavily promoted.   Not only do they attract high annual charges, on top of the commission they pay the IFA, but there is a strong possibility that the salesperson won’t be around after 2013 to be responsible for what has been sold. Investment Bonds can carry high penalties if surrendered early and a commission based IFA has no on-going obligation to provide a service to clients.
 
"RDR will sort the wheat from the chaff as far as the industry is concerned, with fee based practises like Ovation leading the way, but we are concerned that before it actually comes in, there will be many people feathering their own nests at the expense of vulnerable investors. ”  

What would be your ‘One Lesson’ for a New Business?

If you were asked to write an article in answer to the question “what would be the one piece of advice that you would give someone starting a new business” what would your answer be?  It is a question Chris was recently asked. He says his initial thought was: “Don’t”. Having reflected on this answer, he decided it might not be too helpful, so then started to consider why that was his initial reaction. Here are his thoughts:

Running your own business is incredibly rewarding.  You get to follow your own ideas, manage a fascinating project, and build something that will, hopefully, last for a long time. On the other hand, it is a very lonely and stressful thing to do.  They might be your decisions, but they are also your responsibilities. One conclusion, therefore, would be not to set up that business at all.  However, a far better conclusion would be to maximise the enjoyment factor, and minimise the stress factor. 

In my view there are only two things that can possibly cause stress.  They are: 

• Certainty
• Uncertainty

So, control those two simple areas, and running a business is easy!
Joking aside, controlling certainty is more a question of acceptance.  If you know something is going to happen, you can prepare for it, or you can accept it.

The more important of the two, without a doubt, therefore, is uncertainty.  And the more that you can convert one into the other, the better chance you have to succeed, and to be happy (which are both the same thing, really). That is the real secret of running a business, and would be my one lesson:
Minimise as much of the uncertainty as you possibly can. 

Specifically, this means:

• Don’t hide away from difficult truths
• When constructing financial forecasts, be conservatively realistic about sales
• If you are recruiting, identify the characteristics required by the role and match them to the potential member of staff
• Make sure you have a well thought out marketing plan, don’t just assume people will buy what you have to offer
• If there is more than one of you, make sure you have a Share Agreement.  It is essential that you agree what will happen if things don’t work out before they actually go wrong (because it’s a lot harder to agree then).

Some of the above will seem obvious, but it is amazing how few companies actually take these basic steps.  The result?  Uncertainty, and therefore stress. Those of you who know me will know that one of my favourite phrases is “I don’t like surprises”.  Think through every possible aspect of your business before you even open the doors. That would be my lesson to anyone starting their own business.

What would be yours? We’d like to know - send them in and we’ll publish them on our web site, who knows we could have a ‘best seller’ on our hands….

To make a start, here are a few words of wisdom from Chris’ Twitter community:
@BristolBuddies: Do as much market research as possible and start with minimum capital, that's 2 :-/?
@catrinmac: Start with the end in mind. Work out what, why you & how you'll know when you're successful.
@oliviavdw: Advice to start-up - Get decent advice, pay for it if necessary, don't economise on getting things organised from the outset.
@housely: When you meet brick Walls. Think out of the box and find another way round. There's always one
@MistyBlu66 : Get clients or customers 1st. Don't wait until u officially start your biz to line these up, cus ur biz can't survive w/o them
@PoddyG: My advice - Halve your forecasts and then divide by the age of your cat. They need to fit reality, not your hopes
@Taras_Table: One piece of advice to start up a business: be slightly nuts about what you do - I am, and not just slightly.
@MlleCameron: Be careful who you listen to. Are they saying don't do it, because they wouldn't or you shouldn't.
@HeatherTowns:  thx 4 the RT. My advice 4 startups is don't assume word of mouth will b effective until u have an established client base
@ovationjenny: Don’t wait until everything is in place to make a start. Whatever you might think your business will be, your clients’ needs will change and shape it. In a service led company the right client is the business.

Email your ‘One Lesson’ for a New Business to: marketing@ovationfinance.co.uk

Move over Darren Clarke, we have our own golfing hero at Ovation. Adrian Kidd played 72 non-stop holes in 24 hours raising, along with his Bristol Golf Club team mates, over £1500 for Help for Heroes. If you’d like to sponsor Adrian just click here 

Compound success – not only does he understand compound interest, he’s also in to compound sporting success. Adrian also won the Cheltenham Racecourse Challenge bowl – quite a feat when you consider the race course is more suited to 4 legged competitors! “The first tee, up there on the roof of the paddock stand, definitely makes your first shot quite an experience. I really enjoyed the experience and recommend it to everyone. I look forward to playing again next year!”

How we finance our later years was brought sharply into focus when Government finally announced its plan for the National Employment Savings Trust (NEST). Now many of our business owning clients could be forgiven for thinking it doesn’t affect you. We beg to differ.  Over the next few newsletters we will be running a comprehensive guide to NEST and the alternatives that are available to your business.
 
What is NEST?
It stands for National Employment Savings Trust (NEST) and it is the Governments default option for company’s who don’t have a pension scheme.

Who runs NEST?
Employers will have to take responsibility for making sure that both company and staff contributions are paid into a pension scheme. NEST is just one option. The employer is also responsible for communicating this information to staff and ensuring the pension scheme complies with the legislation. Enrolment is automatic and compulsory and affects employers of all sizes.

Why has it been introduced?
It is one way of making sure we all take some responsibility for funding old age, rather than just assuming the State will do it for us.

When does it come into force?
NEST will be phased in between 2012 and 2016. The smaller the business, the longer the timescale to introduce a pension scheme.

So as an SME I’ve got a few years to wait?
Not necessarily, and waiting may not be in your or your employees best interest. Whilst the NEST timing doesn’t affect the SME environment until 2014 employers should be looking to establish a staff pension scheme sooner rather than later. This way you will not end up with one that is imposed by the Government and will allow for the business and employees to ease into a new monthly expense.

It is proposed that:
• All individuals who earn over £5,000 will be enrolled.
• Employees will contribute at least 4% of their annual earnings of between £5,000 and £33,500
• The employer contribution will be at least 3%
• The state will provide a 1% tax relief
• Employees over 22 and below the State Pension age are eligible for automatic enrolment
• Employees outside these age bands can opt-in, with access to an employer contribution if they fall within the earnings bands.

If you have any specific questions just email tomwilliams@ovationfinance.co.uk. Tom is currently developing a Guide to NEST and the Alternatives. We’ll make sure we answer your questions and include them in our next newsletter, so all SMEs can benefit.

Since our last newsletter a number of new clients have joined Ovation. Welcome to your first newsletter and to the Ovation community. One question we’ve been asked is ‘What is this community?’ So, here is what we’d like it to be:

• A place where people come for recommendations about anything and everything.
• A place where our clients and friends can let other people know what they do. We like the idea of working with people we know or who have been recommended to us, as do many of our business clients, this could be the place to find them.
• A place where people share anything, for instance a holiday home.

That’s just a start. We’d like to see the community grow, develop and change and we’d like you to contribute to this in any way you choose. Follow us on Twitter, email your ideas or call us…please.

And on the subject of state pensions - for those who are currently receiving it - proposals for a flat rate single tier state pension is being sold as a solution to poverty in old age. This ‘timely’ announcement comes as the exchequer secretary to the Treasury agrees to a review of the existing "spaghetti bowl of reliefs" that is the pension’s tax system.

The Office of Tax Simplification (OTS) says the review will “consult with stakeholders” (including pensioner groups), gather evidence & identify the bits of the pension’s tax system that cause most difficulties.

We all await an interim report (due pre 2012 Budget) but we’re not holding our breath.