If you are interested in the strategic planning process for exits, you can watch the full briefing here - The Exit – Preparing your business for sale
If you are interested in strategy development for investment then take a look at the full briefing Cashed Up - How to attract business funding.
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Keep browsing Inside Finance for more videos on financial objectives and investment, and why not take a look at the full Cashed Up briefing on attracting business funding.
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Good governance means having great people at the top looking out for the company. But how much should a company pay for a good director? In this TV show Caroline Newsholme discusses pay vs performance.
You should certainly pay for talent. And good directors come at a price. But there’s a feeling that directors remuneration is slightly out of kilter with the real world. It’s certainly being increasing, notwithstanding the fact that we are in a recession, there’s been a quite substantial upwards trend
And obviously a lot of companies have struggled and may not have performed as well. So there there’s an inconsistency between actually the wellbeing of the company and what the directors are being paid.
But I think certainly directors are alive to the concerns that have been voiced by investors and the business world generally. I don’t think they are blasé about the position, they recognise that there has to be a proper link between pay and performance and we can’t continue to see excess packages which are not really justified. Whether we’ll get change at the rate we need change is another question.
But there’s a lot of impetus in the corporate world to increase transparency and to change what’s gone before.
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Inside Finance TV will continue to follow ideas around corporate governance issues. Follow @InsideFinanceTV for more discussion. Watch the full briefing From the top – Ensuring board effectiveness as a director
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Informed financial planning advisors pass on their wisdom to clients. If a company fails they will naturally look at back at this advice. In this TV show Doug Hall discuses throwing the spotlight on professional advice.
For example auditors, we are dealing with a number of cases, where a company has failed, and if the company had not failed there wouldn’t be an issue. But in the company going into administration for example, major creditors had lost and they may say that they have relied for example on audited accounts to make decisions, to lend money or to support the company and in the cold light of day the company having failed, that’s an example where you may go back and look at what the auditor said in earlier years. So we have situations arising from insolvent companies where the spotlight is thrown onto a whole range of professional advice that they were given before the company failed. Which never would have come under that spotlight if the company hadn’t gone into administration for example. It's not an area that we get involved in but valuers have seen a big increase in the number of actions against them very simple because the banks relied on valuations of properties for example, and then when the company has gone into administration and the bank has lost out, they then go back and look again at the professional opinions that they relied upon, in making their original lending decisions.
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A cross border mergers does not only involve 2 firms but 2 countries. In this TV show Giles Murphy explains why English law is often preferred for the contract.
I think English law is still considered to be a key factor in business transactions, and we do see scenarios where you have businesses from two countries engaging with each other, but the contact will be written under English law because the businesses trust the English courts to resolve any differences.
So there’s a great opportunity to export English law, but to do so it does require firms to have a presence in these other territories, and of course a merger is one way of achieving that.
Inside Finance will continue to look at issues around cross border mergers. Look out for more from Giles Murphy.
Pensions are a complex part of personal finance planning. Paul Garwood discusses different ways to receive pension payments in this TV show.
When you reach retirement if you’ve got a pension plan and that pension plan is one that you’ve contributed to and has now grown into a fund, you don’t just have to buy an annuity with that fund.
And you tend to find that those with larger funds wouldn’t necessarily want to buy an annuity because it’s quite inflexible.
Once you’ve purchased an annuity, if you were to pass away very quickly thereafter, the annuity fund or your pension savings go to the annuity provider.
Furthermore when you purchase an annuity you may have to make a one-off decision regarding spouses’ pensions.
And if your spouse predeceases you, then again you’ve bought something you don’t need.
Also with annuities you may have to consider inflation at outset. And that’s quite a difficult call to make.
So what a lot of people do who have reasonably sizeable pots is they enter into income drawdown.Now, income drawdown enables them to dip into their pension plan and take out an income as and when they require it. And depending upon their circumstances, their income within that drawdown plan is capped at a specific maximum or sometimes it’s open-ended, you can actually take out as much or as little as you want from that plan, as and when you want. And the other thing to consider perhaps with less successful people or with people who I think less successful is not the right expression, but people who have got a more tighter budget when they get to retirement, they might want to phase in their tax free cash. Pension plans allow you to release 25% of the fund on retirement and historically a lot of people have used that, perhaps to pay off debt or to buy assets, notably overseas property perhaps. But I think we’re finding now that a lot more people are perhaps using that tax free cash to supplement their income. So they will phase it in over a period of years rather than taking it all in one go. __________________________________________________ Inside Finance TV are following discussions around personal planning and finance, and are releasing more videos daily.
They should seek greater transparency around the pay that directors get, make it clear where performance levels have been achieved or haven’t been achieved and what the impact on that is on directors remuneration packages.
I think they also need to be careful about exit payments, so where a director is departing, making sure that they’re not rewarding someone for failure. So I think they need to be much more open and clear about these points. I think they need to simplify directors’ remuneration packages as well.
Often there are many components to directors’ remuneration, so unless you can carefully add up all the elements it can be quite difficult to get an overall feel for just how much one individual is getting.
And I think some simplicity in structuring remuneration packages would be very beneficial.
I’m not sure there’s been a culture change because I’m not convinced that there was necessarily anything that broken.
I think with the codification of directors duties in the Companies Act 2006, all directors stopped and thought again about how to be good directors and to promote the success of their company for their benefit of the members as a whole.
I’m not as convinced as perhaps some of our national press are that short-termism is such a problem.
If you look at the way a lot of directors remuneration packages for example are structured, there are longer term incentives and share schemes that require them to actually invest some time and effort going forward in their businesses.
At Cranfield School of Management, and particular in the Batton Centre for entrepreneurship, we have a remit really of four parts.
One is we do research in areas related to entrepreneurship, we teach on graduate programmes to help MBAs to start businesses.
But then maybe more importantly, especially to this audience, we work with ambitious owner managers to help them grow their business and take it to the next level. The last aspect we're involved with is events such as Cranfield Venture Day which is an event for ambitious owner managers and investors to come together and exchange best practice.
I think learning, especially as an entrepreneur is essential. We always say as an entrepreneur come back, learn, improve, reflect, and in the current business climate where companies are challenged, to learn from other industries, other sectors I think will help to take the business to face the challenges and take the business to the next level.
Often they don't spot it early enough and it's often dangerous for directors to ignore some of the warning signs.
They get into difficulties for many different reasons, they may be in a recession hit sector, they may not control their working capital facilities very well, they may have inadequate or inappropriate working capital facilities.
They may be a poor management team. There are lots and lots of different reasons why businesses can find themselves in financial difficulties.
Sometimes it's the fault of the management team and sometimes it's outside of their control.
Ultimately what causes businesses to reach the point of failure is that they run out of cash, that is the case in the vast majority of the circumstances we see.
Other causes may be, for example in the current environment where leading up to 2007, for example, we saw banks lending quite aggressively, now they may be... they have lending assets which have decreased I value. And so companies may, for example, have failed their banking covenants and that's a potential risk for failure as well.
But often it's the cash, cash running out, not being able to pay the VAT bill or the rent or the wages.
Sometimes it can take a while to work out what somebody has but I think one of the first meetings that you have with the client is really important because you understand just them talking through what they think they have.
It gives you an idea of where they want to go and it gives them an opportunity to work out where they want to go, what's important.
The lovely thing about financial planning, you can't walk up to a cash point and press a button and it tells you what you should do, it's all very personal.
We all have different hopes and aspirations and dates that we think we're going to retire or what we want to do with our money.
So it's wonderful, you get to know your client very well.
Entrepreneurial spirit will be portrayed in various parts of a persons character. In this TV show Julie Meyer discusses persistence.
I’m fairly good at picking up on how much steel somebody has in their spine. So, you can tell and it’s not just the level of intensity or the stare that they give you, it’s more you can kind of sense in how concerted an effort. People betray their level of persistence in many ways and I don’t know how, it’s almost like a neural network after you’ve done it for so long. But you can kind of sense whether somebody’s going to pull through, for example, with Alastair Lukies of Monitise there’s just something that I felt about him that he was extraordinary and exceptional. And, you know, when he got his first client he secured the first client and he sent me a text message, it was like a Friday night in 2006. And I remember getting a text message that said, you know, 106 meetings, 76 nights away from my wife, but we have a client today. And, you know, that’s irrational, that’s obsessive behaviour. Normal people do not do that, normal people don’t just keep on going. Now, he wasn’t just banging his head against the wall, what he was doing was constantly learning, constantly retargeting, adjusting. And so the man is extremely smart, which is why Monitise is doing, you know, Monitise will be one of the most important companies ever to have been founded in the United Kingdom. But it takes an irrational level of persistence. And I think I’m pretty good at figuring out whether somebody is up for that.There are many more great videos about entrepreneurial spirit and business success on Inside Finance. Look out for more briefings on the subject.