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Why SMEs are outsourcing more and more

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Why SMEs are outsourcing more and more

By Optimum Finance CEO Richard Pepler 

Being an SME owner manager means being not just a jack, but often a master of all trades as you swap between your core business function to HR, accounting, credit control, financial planning, logistics, web design – the list could go on and on.

Richard Pepler

Richard Pepler

If not managed sensibly, this can quickly lead to business burn out. It is also important for any SME owner manager to recognise that however talented, intelligent and energetic they are, they are probably not as good at say, accounting, as a trained accountant who focuses on that specific task all day.

Large companies will have in-house staff recruited to carry out these more specialist business tasks with whole departments dedicated to finance or HR, but most SMEs do not have the capacity to pay full-time staff for such roles.

This is why it has always been necessary to use external expertise at times but it seems to be becoming more so.

As an independent lender specialising in invoice finance solutions for SMEs, we have noticed a marked rise in clients wishing to outsource all their accounts, credit control and debtor protection to us alongside their lending facility in the last 12 months.

This used to be quite rare with most companies opting to take out an invoice finance facility but keeping their credit control and accounts inhouse. We are now seeing about 85% of our clients opting for the full service.

So, why the sudden shift?

Future proofing

The UK is currently going through a period of political and economic uncertainty which shows no sign of resolution. This makes businesses nervous and thus growth more tentative. Business investment in the UK dropped throughout 2018 – the first time we have seen four consecutive falls since 2009 – and while it has picked up a bit this year, it is clear that business executives are holding off on big investment decisions until they have some clarity about the direction of the UK economy.

For SMEs which are more vulnerable to economic fluctuations than bigger businesses, this makes it vital to future proof themselves against potential bumps in the road. In essence, this means protecting their cash flow and balance book at all costs.

This is why invoice finance, by which SMEs can borrow against the value of their invoices and get paid upfront is so helpful. It also explains why we have seen such a big rise in demand for debtor protection which essentially insures an SME against clients defaulting on their outstanding debts.

However, future proofing also means controlling your outgoings carefully and the biggest outgoing in almost any business is its staff.

This is what is driving the growth of outsourcing.

Rather than commit to more employees, companies are increasingly choosing to simply draft in additional services when they need them, meaning they can keep their permanent staff team very lean.

This has multiple advantages which we will now look at:

Project-based work

There has been a general shift across many business sectors to more project-based work rather than retained contracts. Since the recession of 2008 to 2012 businesses have become savvier in their spending, refusing to tie themselves into long-term contracts needlessly. For suppliers this can be a challenge as it means their workload can fluctuate greatly month on month. When a big project lands, they need to be able to upscale and absorb the extra workload rapidly but when it ends, they do not want to be left with excess staff draining the company coffers. This is where outsourcing becomes a vital tool giving companies the agility to survive in this unpredictable environment.

Technology has driven a rapid rise in remote working as businesses are more reliant on digital communications than face-to-face interaction. This makes SME owner managers more ready and willing to outsource work as it is no longer considered a problem to have staff located outside the immediate office environment.

Employment laws

Taking on a new member of staff is a big responsibility which extends beyond simply covering their monthly paycheque. There are dozens of laws and acts dictating the rights of employees which any SME owner must consider before recruiting. These include statutory sick pay, holiday pay, National Insurance contributions, statutory workplace pension schemes, health and safety risk assessments, maternity or paternity leave, liability insurance and so on. In essence, a new staff member is a big expense, commitment and time drain.

For an SME with tight margins, it is a lot quicker and easier and far less risky to use freelance support where possible. While freelance or external providers may charge a higher hourly rate, they are only paid for the specific work they do and save businesses the many responsibilities that come with taking on in-house staff.

Easy access to greater expertise

While staff in most SMEs are used to helping out on a broad range of business tasks, whether it is sales and marketing or client handling, they are unlikely to be experts in the things which are a departure from their key role. If they have been employed as a product designer, they probably won’t be brilliant at bookkeeping. This is where outsourcing can be a sensible route as SMEs can draft in someone who is an expert in their field to do the task in hand. Our credit control team for instance can save staff many tiresome hours chasing down of clients for payment and facilitate better in-house relationships with the clients by removing that potential source of tension.

There is a dual benefit as the outsourced task will be done really well and efficiently while also enabling your staff to focus on their key roles, enhancing performance and job satisfaction.

Key services for outsourcing

For all the reasons above and more, outsourcing can be integral part of any SME business growth strategy. Technically, there is no limit to what a company could outsource but there are certain functions which lend themselves much better to this than others. Many of these are related to the more administrative and financial side of running a business such as accounting, bookkeeping, credit control and IT support.

Other tasks such as sales and client services are best done in-house by staff who have a detailed understanding of your business offering or product and its strengths.

By removing time-consuming admin, you will free up staff time to excel in their key areas of expertise, resulting in a happier, more efficient and more successful company.

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Robinhood plans confidential IPO filing as soon as March – Bloomberg News

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Robinhood plans confidential IPO filing as soon as March - Bloomberg News 1

(Reuters) – Online brokerage Robinhood, at the centre of this year’s retail trading frenzy, is planning to file confidentially for an initial public offering as soon as March, Bloomberg News reported late on Friday, citing sources.

The California-based brokerage has held talks in the past week with underwriters about moving forward with a filing within weeks, Bloomberg said.

Robinhood did not immediately respond to a request for comment.

Reuters reported last year that Robinhood has picked Goldman Sachs Group Inc to lead preparations for an initial public offering which could value it at more than $20 billion.

Robinhood was at the heart of a mania that gripped retail investors in late January following calls on Reddit thread WallStreetBets to trade certain stocks that were being heavily shorted by hedge funds.

The online brokerage tapped around $3.4 billion in funding after its finances were strained due to the massive trading in shares of companies such as GameStop Corp.

(Reporting by Ann Maria Shibu in Bengaluru; editing by Richard Pullin)

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Analysis: How idled car factories super-charged a push for U.S. chip subsidies

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Analysis: How idled car factories super-charged a push for U.S. chip subsidies 2

By Stephen Nellis

(Reuters) – When President Joe Biden on Wednesday stood at a lectern holding a microchip and pledged to support $37 billion in federal subsidies for American semiconductor manufacturing, it marked a political breakthrough that happened much more quickly than industry insiders had expected.

For years, chip industry executives and U.S. government officials have been concerned about the slow drift of costly chip factories to Taiwan and Korea. While major American companies such as Qualcomm Inc and Nvidia Corp dominate their fields, they depend on factories abroad to build the chips they design.

As tensions with China heated up last year, U.S. lawmakers authorized manufacturing subsidies as part of an annual military spending bill due to concerns that depending on foreign factories for advanced chips posed national security risks. Yet funding for the subsidies was not guaranteed.

Then came the auto-chip crunch. Ford Motor Co said a lack of chips could slash a fifth of its first-quarter production and General Motors Co cut output across North America.

“It brings home very clearly the message that the semiconductor is really a critical component in a lot of the end products we take for granted,” said Mike Rosa, head of strategic and technical marketing for a group within semiconductor manufacturing toolmaker Applied Materials Inc that sells tools to automotive chip factories.

Within weeks, automakers joined chip companies calling for chip factory subsidies, and U.S. Senate Majority Leader Chuck Schumer and President Biden both pledged to fight for funding.

Industry backers now aim to be part of a package of legislation to counter China that Schumer hopes to bring to the Senate floor this spring. Still, all agree it will do little to solve the immediate auto-chip problem.

Headlines about idled car plants resonated with the public that had shrugged off abstract warnings in the past, said Jim Lewis, a senior fellow at the Center for Strategic and International Studies. Lawmakers, already worried that a promised infrastructure bill will not materialize this year, decided to push for quick solution.

“Nobody wants to be seen as soft on China. No one wants to tell the Ford workers in their district, ‘Sorry, can’t help,'” Lewis said. “It was one of those moments where everything aligned.”

The package includes matching funds for state and local chip-plant subsidies, a provision likely to heat up competition among states including Texas and Arizona to host big new chip plants that can cost as much as $20 billion.

The subsidies could benefit a factory in Arizona proposed by Taiwan Semiconductor Manufacturing Co and one in Texas eyed by Samsung Electronics Co Ltd, even though those factories would be geared toward high-end chips for smartphones and laptops, rather than simpler auto chips. And those factories would not come on line until 2023 or 2024, according to plans disclosed by the companies, the world’s two largest chip manufacturers.

In the longer term, a raft of U.S. companies are also poised to benefit. Any chipmakers that build factories will source many tools from American companies such as Applied, Lam Research Corp and KLA Corp.

Intel Corp, Micron Technology Inc and GlobalFoundries – which already have U.S. factory networks – will also likely benefit.

Smaller, specialty chip factories also could benefit.

“The recent chip shortage in the automotive industry has highlighted the need to strengthen the microelectronics supply chain in the U.S.,” said Thomas Sonderman, chief executive of SkyWater Technology, a Minnesota-based chipmaker that makes automotive and defense chips. “We believe that SkyWater is uniquely positioned due to our differentiated business model and status as a U.S.- owned and U.S.- operated pure play semiconductor contract manufacturer.”

Even with subsidies, the U.S. companies still must compete with low-cost Asian vendors over the long run, and the immediate auto chip troubles will probably persist.

Surya Iyer, a vice president at Minnesota-based Polar Semiconductor, which makes chips for automakers, said his factory is booked beyond capacity and has started to speed some orders up while slowing others down, to meet automakers’ needs as best it can.

“We are expecting this level of demand to continue at least for the next 12 months, maybe even longer,” he said.

(This story has been refiled to add attribution to quote in paragraph 9, add dropped words in paragraphs 10 and 17)

(Reporting by Stephen Nellis and Hyunjoo Jin in San Francisco and Alexandra Alper in Washington. Editing by Jonathan Weber and David Gregorio)

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Atlantia disappointed with CDP bid for unit, continues talks

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Atlantia disappointed with CDP bid for unit, continues talks 3

By Francesca Landini and Stephen Jewkes

MILAN (Reuters) – Italy’s Atlantia said on Friday an offer by a consortium of investors led by state lender CDP for its 88% stake in Autostrade per l’Italia fell short of the mark and asked its top managers to see if the bid could be sweetened.

“The offer falls below expectations,” the Italian infrastructure group said in a statement, adding it had mandated the chief executive and the chairman to assess “the potential for the necessary substantial improvements” to the bid.

Italian state lender CDP, together with co-investors Macquarie and Blackstone, has presented a proposal valuing all of Autostrade per l’Italia at 9.1 billion euros ($11 billion).

The consortium also requested Atlantia guarantee up to 700 million euros in potential damage claims and another roughly 800 million euros for a pending legal case, making the bid less attractive than previously expected.

One source said the consortium estimated overall pending legal claims against Autostrade at 3 billion to 4 billion euros, adding the 700 million euro cap did not mean the amount would be detracted from the offer price from the start.

Earlier on Friday Atlantia’s minority investors TCI and Spinecap had called on Atlantia’s board to reject the offer, saying it undervalued the asset.

“No deal is better than a bad deal, especially a bad deal and a wrong price,” TCI Advisory Services partner Jonathan Amouyal said in a emailed comment to Reuters.

TCI, which holds an indirect stake of around 10% in Atlantia, repeated that the value for 100% of Autostrade should be no less than 12.5 billion euros.

The board will hold a further meeting in order to take a final decision on the offer in due time, Atlantia said.

The negotiations between Atlantia and the CDP-led consortium are part of an effort to end a political dispute over Autostrade’s motorway concession triggered by the collapse of a motorway bridge run by the unit.

(GRAPHIC – Atlantia share performance: https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqggjdpx/image-1614331237501.png)

The bid expires on March 16, but the deadline could be extended in case Atlantia calls an extraordinary shareholders meeting (EGM) on the issue, according to one source with knowledge of the matter.

Shares in the group ended down 0,7%, after recovering some losses, as investors waited for the decision of the board.

Atlantia, which is controlled by the Benetton family, owns 88% of Autostrade, with Germany’s Allianz and funds DIF, EDF Invest and China’s Silk Road Fund holding the rest.

The group also kept open an alternative plan to demerge and sell its stake in Autostrade per l’Italia unit and called an EGM on March 29 to extend to end-July a deadline for offers for the demerged stake.

(Additional reporting by Stefano Bernabei, editing by Louise Heavens and Steve Orlofsky)

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