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Cost Certainty – The SME Business Owner’s Guide to Property Expansion

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Cost Certainty – The SME Business Owner’s Guide to Property Expansion

Phil Sugden, director at flexible workspace solutions provider, Portal Group, discusses how rapidly growing SMEs can alleviate the extensive capex obligations incurred when relocating offices.

For both small and large businesses alike, an office move can be an incredibly daunting and time-consuming process.

The start of a brand new year offers businesses a crucial opportunity to attract new talent. January is not only a peak time for prospective employees to begin looking for their next career move, but also a key time for growing SMEs to consider relocating their workspaces to larger premises due to growth[i].

However, the uncertainty of the current market conditions, and of course Brexit, means that UK-based SMEs are now required to adapt their operations to become more flexible than ever before.

The fixed terms and extensive lease lengths associated with the conventional leasing model can present significant challenges for smaller businesses experiencing rapid growth.

While growth is one of the most esteemed characteristics of any successful organisation, research has found that 78% of SMEs actually delay moving offices due to the stress associated with property acquisition[ii].

Despite this, property expansion is a fundamental phase for SMEs. Relocating to larger premises allows businesses to meet fluctuating demands, while also facilitating the introduction of a larger workforce.

Property acquisition is commonly considered to be one of the most costly financial investments a small business can encounter. Under a traditional lease, business owners must consider an array of different expenses, including fit out and facilities management at the start of a new lease, and dilapidations and exit fees at the end of their current lease.

Unpredictable fees can have a seriously negative impact on businesses, forcing even the most well-established businesses to reassess their budgets. With various different costs incurred throughout the process, forecasted budgets can easily be exceeded due to delays, oversights and issues emerging unexpectedly.

This, in addition to the time-consuming process of acquiring the multiple formal approvals required for revising budgets, can have a detrimental effect on output and productivity.

In comparison to other areas of the business, property acquisition under the traditional office lease presents a substantial capex obligation, and the cost is not always guaranteed if the project is managed incorrectly.

As a result, SMEs today are far less attracted to the financial burden of a lengthy traditional lease, and instead far more attracted to contemporary workspace contracts that can facilitate their future growth strategies.

Small to medium sized businesses are now viewing their office space requirements as a strategic component of their business plan, and thus opting for more flexible leasing options at a fixed price, with no additional costs.

In the UK today, the vast majority of traditional office leases require a commitment for a 10-15 year fixed term. For SMEs growing in a rapidly evolving market place, this can limit future business developments and changes to working culture.

The contract lengths for managed office options, however, typically range from 3-5 years. This enables companies that require a high number of workstations, to closely align their accommodation requirements with their actual business needs, allowing them to expand or downsize as required.

The first step of the property expansion process is sourcing a suitable building and location. Under the traditional office lease, businesses are required to self-source their chosen property. Packaged offerings will undertake a bespoke property search which closely aligns with business requirements, in addition to handling the entire project management, which will be combined into a single cost.

Once a suitable property has been selected, the terms of the contract can then be negotiated. This is a crucial time for SMEs to reflect on their growth strategy and meticulously forecast for how their property requirements could change over the given time period.

Once negotiations have completed, SMEs relocating under the traditional lease should begin the process of relocating their IT and telephony infrastructure. This is a critical part of the relocation process, and one of the biggest causes of reductions in productivity if not managed correctly. Managed office models integrate the IT move into the project, minimising business interruption and downtime.

One of the final stages of the expansion process is fitting out the new workspace. SMEs should carefully consider the time, resource and costs associated with designing and branding their new office. If opting for a conventional lease, this will need to be outsourced, in addition to sourcing the furniture and managing the utilities, which can present a substantial additional expenditure

Businesses are also highly restricted on how they can utilise their office space to reflect their brand and organisational culture. With flexible managed office models, office design is determined by the occupier and not the provider, and can be bespoke to the business’s requirements.

Under the traditional office lease, the possibility that SMEs may need to expand, reduce, reallocate or relocate their workforce can be extremely costly and entirely impractical. Conversely, opting for a managed office approach will allow contracts to be priced on a per workstation basis with no capital expenditure or risk.

With simple, streamlined systems and structured terms from managed office options, business owners can invest their time, effort and money into their businesses, not bricks and mortar.

Simply put, the rise of companies opting for flexible office options is allowing them to not only access all the amenities they need at a fixed price, but also to eliminate risk and work within a flexible financial model that fosters their own unique growth and culture.

For more information visit www.portalgroup.uk.com.

[i]https://www.monster.com/career-advice/article/job-search-recruitment-cycles

[ii]https://www.premierworkplaceservices.co.uk/knowledge-centre-articles/7-things-to-consider-when-relocating-a-company-office/

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Battling Covid collateral damage, Renault says 2021 will be volatile

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Battling Covid collateral damage, Renault says 2021 will be volatile 1

By Gilles Guillaume

PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.

Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.

“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”

De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.

The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.

Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.

Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.

The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.

The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.

Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.

“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”

Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.

SHARP HIT

The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.

Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.

The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.

In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.

Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.

Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.

Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.

It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.

De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.

($1 = 0.8269 euros)

(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)

 

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UK delays review of business rates tax until autumn

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UK delays review of business rates tax until autumn 2

LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.

Many companies are demanding reductions in their business rates to help them compete with online retailers.

“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.

Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.

($1 = 0.7152 pounds)

(Writing by William Schomberg, editing by David Milliken)

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Discounter Pepco has all of Europe in its sights

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Discounter Pepco has all of Europe in its sights 3

By James Davey

LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.

The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.

Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.

“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.

To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.

The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.

Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.

Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.

That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.

“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.

Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.

Sales rose 3% to 3.5 billion euros, reflecting new store openings.

($1 = 0.8279 euros)

(Reporting by James Davey; Editing by David Goodman)

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