Hot for profit
How can a business build its fortune while the world is spinning so unpredictably, when even experts are flummoxed by the alarming rate of political change?
Accountants and advisers BDO share some insights from the local and global business perspective – and case histories from two companies named among the Central South Mid Market’s top performers for 2017 and the Sunday Times Profit Track 100.
First – be reassured. Business is doing business and making profit. As both profit growth lists illustrate, there are many mid-sized firms punching well above their weight.
But as Brexit negotiations begin, what does business need to survive and thrive in our brave new, non-EU world?
We believe there are three key areas which the policy makers must urgently address.
Encourage the UK’s fast-growth mid-sized businesses
A simpler payroll, fusing National Insurance and Income Tax, will cut back on administrative clutter – while a moratorium on any changes to UK corporate tax until 2020 will give our businesses some much needed certainty. Similarly, a simpler, faster route to accessing capital will promote growth, along with long-term lending trusts.
And once Brexit negotiations are finalised? How about some tax incentives for technology firms? Social investment tax relief to increase finance sources for social enterprises? An extension of childcare support for one to four-year-olds to help plug the skills gap?
We’d like to see investment in smart infrastructure to nurture businesses and local communities, a strengthening of Local Enterprise Partnerships, a long-term industrial strategy and funding for innovation and digitisation.
Add in a cut in VAT for the tourism industry, a reform of business rates for high-street retailers, a robust growth environment for medium-sized housebuilders. Also, the creation of a centre of excellence for the UK’s oil and gas – and decommissioning – industries.
Open and simple access to world markets and global talent
How will we access talent and markets around the world? Return to a variant of our current EU financial services passporting – and remove overseas tax barriers and VAT on supplies to companies that export, post Brexit, thus encouraging more firms to trade abroad. Supporting high-quality apprenticeships and reinstating the two-year post-study visa will mean we hang on to talent.
You can read more detail in the BDO New Economy report.*
The thoughts of two of the region’s top mid-market performers:
TRADING OVER TIME
Sydenhams may be a builders’ merchants, but joint managing directors, brothers James and Charles Sherborne, operate like time lords.
There’s no TARDIS – although the firm could likely supply everything you need to build one – but the brothers, this year guiding the firm to profits of around £6.4 million, are acutely aware of time streams. They think from 1874 to 2067.
Sydenhams began importing timber at Poole’s Hamworthy Wharf in 1874 and was bought by great grandfather Sherborne in 1920.
“Clogs to clogs in three generations is the old saying,” says James. “The founder is entrepreneurial; not much money. The children are brought up with the same issues – but the third generation tends to end up blowing it. Charlie and I are fourth generation.”
Yet, so far, no clogs.
How has the firm weathered boom, bust, wars and turbulence across two centuries? The long game.
“Over nearly 100 years we’ve regularly invested, so most of our sites we own freehold,” says Charles. “This may have held us back in total growth but when times get tough you can just entrench.
“We don’t just plan the next five years; we look at twenty-five or even fifty. Planning over a long period has paid dividends.”
Old fashioned money habits have paid off too. “We’ve never really borrowed extensive sums,” says James. “Except in 1999 when my brother and I bought the family out. Prior to that we never borrowed. My father would only invest in acquisitions or plant or lorries when there were surplus funds in the bank.
“We’ve grown up under sensible rules from our parents, grandparents and great grandparents.”
Yet, despite this ancestral steadiness, the firm is now moving in a much faster time stream when it comes to business decisions. “We are very flexible; we can move really quickly,” says Charles. “When the gardening programmes all went into decking, we’re timber importers, so we made lots of money out of decking. Then hardwood flooring – that’s been tremendous and we’ve moved into that. Currently it’s natural stone for patios. Products come and go and we come and go with them.”
A history of letting managers trade on their own wit and experience has helped grow an enviable workforce with negligible staff turnover. While something great grandfather Sherborne might choke over is the 21st century ties with local independent competitors; working together in vital buying groups.
Both brothers are chipper about the Brexit outlook for Sydenhams and the UK. They hope for favourable corporation tax and simpler employment law. Time travel would be handy to foresee the snags but UK supply chains and courtship from new overseas traders looks encouraging for the future.
“We’re both ready for the future and excited about it,” says James, “like most in our industry.”
GO WITH THE FLOW
Two kinds of flow concern Pennyfarthing Homes executive chairman Mark Adams and managing director Matthew Dukes.
One is cash. The other is rivers.
As the New Milton-based firm prepares for a 40th birthday party with its 75 staff this summer, the two recessions it has weathered have been instructive. With uncertain times ahead, this experience stands the firm, which last year turned over £36m, in good stead.
“I think the experience of the first one when I was relatively new to the business taught me how to avoid it the second time around,”says Adams.
“It’s all about cashflow. You need to make sure you’re in a robust cash position and have absolute focus on cashflow.”
Joining the family firm at just 18, Adams was able to see first-hand the crippling effects of 1989.
“I started as a site manager and then moved into surveying. There was very little work going on. There were building sites standing empty for a couple of years.”
The circumstances led him into working with the group’s banks and financial advisers.
“I managed to get involved in all the negotiations. It made me appreciate cashflow.”
When the 2007-8 crash hit, Pennyfarthing Homes was prepared, thanks to remembering 1989 and, crucially, the years leading up to it.
“The main lesson we learned was to stop buying land when the price range became ridiculous for a year or two leading into the last recession. This allowed us to trade our way through the recession and take advantage as the country came out of recession.
“There are a whole host of constraints to consider as to where areas suitable and sustainable for development might be, but that’s what we are good at.”
“Forming a relationship with landowners is important,” says Dukes, who manages a ‘hefty’ land bank. “There’s an undeniable shortage of houses. We knew something had to give at some point and we thought the local plan renewals was about the right time.”
“We now employ a strategic land department,” adds Adams. “It’s crystal ball gazing – but it’s educated. With most towns and villages it becomes clear from the rivers and roads, landscape features and the shape of existing settlements where the houses can go.”
River and cashflow management may be in hand – but the undertow of Brexit brings other challenges.
“I get very annoyed with the doomsayers,” says Adams. “What excites me is taking back control. I’m not anti-immigration – I believe we need immigration – but for me it is more about Brussels and the control.”
Dukes is hopeful of less red tape. “It would be great to remove some layers of bureaucracy; and get some real positive action to open doors for business.”
For more information contact Cheryl Martin
023 8088 1754
*To see the full list of the Central South Mid Market Top 20 for profit growth:
To download a copy of the BDO New Economy report: