November 2007

Succeeding as an SME

I wrote an article last month for an accountancy magazine. They asked me to focus on small businesses, what makes them succeed, and what difference an IFA can make.

I thought I would give you edited highlights focusing on those points relevant to retirement planning.

I focused on SMEs (small and medium sized enterprises).

The DTI (Department of Trade and Industry) describes these as a business with a head count of 250 or less. This may seem a large number of employees, but of those that fall under the SME definition, 71% have no employees at all and 24% have less than 10 employees (DTI's own figures). You can do the maths I'm sure, but for those that can't turn on the abacus that means that 5% have over 10 but less than 250 employees.

I would suggest that giving quality financial advice to the latter group is a very different prospect from advising the remaining 95%. I'll return to this later.

Percentages are very nice, but let me translate these in to hard numbers. There are an estimated 4.3 million SMEs in Great Britain.

This means that there are 3.225 million SMEs with 10 or fewer employees, and 1.075 million with more than 10.

As you know it is a requirement to provide access to a stakeholder plan when the headcount reaches five or more, and this is a good opportunity to talk to the directors about a package of employee benefits including pension, life cover etc. Employers with more than 20 employees will not continue to attract quality employees if they do not offer a decent benefits package, but I would suggest as advisers you pass group benefits of 20 or more on to a specialist. If you are not experienced and do not have the systems and back office to deal with group benefits, you will soon find yourself bogged down in administration that will prove frustrating and financially un-rewarding (I speak from experience!).

However, I believe that an employee with up to 20 employees can be looked after by a small team of advisers and back office support. At this level the advice is more personal than corporate.

A lead adviser must take responsibility for the relationship and deal with the directors. This person may also be looking after the directors' own personal affairs. There should be at least one other adviser to offer holistic advice and guidance to the employees, not only on the company package, but on their own financial affairs.

Offering advice to individual employees in conjunction with the employer can help the employer/employee relationship - the employer almost being viewed as a father figure providing guidance through life's milestones such as their first mortgage etc.

But there is much more that an IFA can offer SMEs than stakeholders.

One of my pre A-Day favourites was the use of the directors' SIPPs or SSAS to help find the business premises from which to trade. Accountants were usually right behind such a move as it made good tax and business sense. Although the borrowing limits have been changed to 50% of the fund value, the higher maximum tax relievable premiums and perhaps some retained pension benefits can still make this a viable option, perhaps not in year one, but in year three or four. Plenty of time to build the relationship with both the SME and the accountant and add value in other areas.

Tony Clements
IFA
Park Row Corporate and Private Clients