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How FinTech will be used as a force for good in the future

Posted on March 20, 2019 Written by Administrator

Financial Technology (FinTech) is an exciting area to be in at the moment. Recent technology has opened up almost unlimited possibilities and disruptive businesses are using technology to undermine established global players.

Even before the 2008 financial crash, many people had begun to realise that the financial system was profiting only a small group, as private citizens were burdened with bailing out major global banks.

Deeply entrenched services, practices, and products at traditional financial firms weren’t evolving for their customers’ needs. They were also maintaining old banking practices, for example the transfer of funds should take seconds, yet still takes days. So new platforms popped up to offer brand new services such as TransferWise and Monzo. Just look at how Monzo has managed to disrupt the banking sector with its app-based current account, in the process becoming the fastest growing bank in history!

But success stories like Monzo aren’t based on one technology alone ‒ it’s the combination of technology layers that allow for disruptive new approaches to finance.

Let’s take a look at the innovations coming through and how they will combine to turn FinTech into a force for good…

1. Distributed ledgers

Blockchain is the most widely used and well-known distributed ledger. Essentially, Blockchain is a public ledger of transactions. When a transaction occurs, it is added to the Blockchain. Other technologies can then reference the transaction, call up transaction history, and use the data in other novel ways. The fallacy here in this false messiah, is that it would require a limitless amount of energy to scale this globally.

The important thing to know about Blockchain is that it is public and cannot be edited, making it reliable and transparent. While the technology and purpose are sound, the scalability issue needs to be resolved.

Consider how the Blockchain could be used to ensure sustainable and ethical purchases. A resource, such as a tree or mineral, is added to a Blockchain including reference information about where it came from, who the supplier was, the original costs, etc. Whoever then buys the raw material can check its history to ensure it came from an ethical source and that the works received a fair income.

This process then continues throughout the supply chain to the consumer.

Most people want to buy ethical and sustainable products but, currently, it’s impossible to know the full supply-chain history. Distributed ledgers will be used to provide the complete history of a product, right back to the raw materials, embedding economic justice into every product. This will allow consumers to make informed purchasing decisions which will, in turn, drive improvements to the ethics and sustainability of supply chains.

Until we fix the problem around the inequitable exploitation of workers in developing countries, we will continue to unconsciously dine on the suffering people in developing nations to fuel our economies. A great example of this is the fuel that runs our cars, how do you know that this fuel was not harvested from conflict countries where the local people have been robbed of their resources? Would you consent to this? Are you aware of this? As consumers people do not want to be complicit in the death and destruction of other communities, that is why transparency is so important and as our director of communications Kevin Jackson says, there is a tsunami of transparency coming to all brands.

Brands need to be on the right side of history.

Take our current forestry project in Costa Rica. We want to ensure the protection of the local environment and help develop the local economy. By feeding the development through a regulated financial exchange which improves on the scalability of the Blockchain’s technology, we can ensure that developers are fulfilling their promises to provide sustainable wood while reinvesting into the community. The same approach could be applied to almost any product.

Imagine being able to find out exactly where your coffee was grown, how the farmers were treated, whether they were paid a fair price, and how the coffee has been processed along the way, that would provide a sense of meaning and fulfilment as you drink your morning cuppa. You could ensure that every sip was ethical and cruelty-free. That’s exactly what a number of key technologies are already doing – and we want to scale this to many other products.

2. Decentralised Exchanges

In the Western world, financial services make up a sizeable chunk of the economy. In the UK, the financial sector contributes 6.5% of total GDP

The reason the financial sector is so large is that it has become involved in almost every aspect of finance, from personal loans to government debt, home insurance to credit default swaps (CDOs), and, importantly, business loans. What’s more, while usually only acting as an intermediary for these services, financial firms earn a commission on everything they touch.

Essentially, financial services firms are expensive middlemen who have worked their way into almost every aspect of society.

Decentralised exchanges don’t rely on middlemen. As the name suggests, the exchange itself is not centralised in any particular location or around any particular company. Some even use alternative currencies like Bitcoin and Ethereum to facilitate exchanges. As such, they remove the power and profitability from a small group of financiers and put it into the hands of the customers.

In the future, decentralised exchanges will play an important role in the democratisation of money and finance. People will be able to choose where to put their money, towards what initiative or cause, and move their money around at will without the complex and expensive middlemen. Platforms such as GSI Exchange and Binkabi.io are already offering a solution for issuing, trading and financing commodities on the blockchain, creating the potential to trade anything on a decentralised exchange.

3. Smart Contracts

Smart contracts use the Blockchain and decentralised exchanges to enact specific terms automatically, using technology. A simple smart contract used for a token purchase, for example, could state that when the sale is closed that x-amount of tokens will be transferred to the purchaser in exchange for x-number of Ethereum. The investor essentially buys the contract which is then executed automatically when the sale is closed. While this is a fairly simple example, there are almost infinite ways smart contracts could be applied. The technology is also developing at a rapid pace, allowing smart contracts to be applied in more cases than ever.

Again, smart contracts will cut out the expensive middlemen, allowing for direct and secure agreements between two parties without the need for financial advisors and lawyers. This will make it cheaper and easier for businesses to create deals and provide an additional level of security.

Small businesses will be able to float stock options without the need for a centralised stock exchange, freelancers and sole traders can ensure they are paid on delivery of the work, and charities can automate large chunks of their financial admin…just for example.

Applied to things like economic development, smart contracts could be developed to help build investor trust around assets that are owned by the indigenous people of a developing region. A smart contract could, for example, ensure funds are automatically distributed from escrow simultaneously into stakeholders’ accounts when the product has made it through the supply chain and all ethical standards have been met, all without having to pay expensive lawyers and financial middlemen.

Smart contracts, if constructed in the right way, can provide this level of transparency, efficiency and trust in all transactions, levelling the playing field for countries that have been left behind by investors.

4. Crowdfunding

Crowdfunding platforms have been around for almost 10 years now and have developed from simple reward-based platforms like Kickstarter into sophisticated equity investment platforms like Crowdcube, which attracts millions in capital.

One of the main allures of crowdfunding is that entrepreneurs can connect with potential customers to raise finance without risking losing a controlling stake or having an angel investor meddling in their business idea. Additionally, individuals can easily and cheaply own stakes in a number of companies they want to support, without all the complexities and costs of the stock market.

Essentially, crowdfunding allows anyone to become an investor rather than reserving that right exclusively for a capitalist class. This puts even more power into the hands of customers to drive innovation ‒ instead of being led by market forces and submitting profit to already wealthy individuals, customers can use their money to direct the market by helping businesses get started while enjoying a share of the profit.

In the future, Blueprints will be launching a joint-venture for decentralised exchange that will integrate all these technologies. Enabling a crowdfunding platform for development projects with an equitable share to the locals. Allowing individuals to support development projects around the world, where people can participate with money, time, or resources to advance the project, tracking its progress as it develops. This will allow them to make scalable investment returns while generating a positive social impact, which due to changing consumer demands will be absolutely correlated in the future. More and more, people are demanding that the products they consume are based on the values they want to live by.

As we can see, FinTech is redistributing financial power away from big, centralised businesses into the hands of individuals. Until we democratise finance we cannot claim to live in a true democracy.

Making finance democratic is a key step in our growth ‒ your money is a vote for the kind of future you want to see.

ABOUT THE AUTHOR

David Solomon is co-founder and CEO of Blueprints ‒ a FinTech company aiming to make international development fair and sustainable. David worked on Fixed Income Business Management at Citigroup and Salomon Brothers Investment Bank for five years before leaving to pursue his interests in social enterprise.

David was a pioneer of the Nation Building Initiative, a new blueprint for Impact Investment, as well as co-founder of the Financial Times Global Impact Summit. He has attended the World Economic Forum as a participant from 2013-19 and is an advisor to Heads of State, Kings, UHNWs, Leaders, Generals and CEOs on strategy.

Web: https://blueprints.org

Crowdcube: https://www.crowdcube.com/companies/blueprints/pitches/qY9Goq#

Instagram: https://www.instagram.com/solomonk77/

LinkedIn: https://www.linkedin.com/in/solomon77/

References:
1
https://www.brookings.edu/opinions/stop-worrying-the-finance-sector-isnt-destroying-the-economy/
2 https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN0619

Five ways ensure your business reputation is still intact in 20 years

Posted on March 18, 2019 Written by Administrator

Whether we like it or not, we’re in the midst of a paradigm shift away from institutional governance and towards people power. The connected economy of the internet has allowed huge decisions to be dictated by what are effectively digital referendums; some good, some potentially harmful, but all undoubtedly historical in their nature. We are at the tip of the iceberg and there is still significant change ahead.

I am optimistic that much of this change is for the good. However, history has a habit of looking unfavourably towards individuals and corporations who don’t hold up to the scrutiny of modern morality. This is evidenced by the demonisation of all slave traders, colonisers and sexual exploiters of history, who often were simply doing what was ‘perfectly legal’ in their period of history.

It isn’t easy to tell how history will look back at us now, but the signs are there. Our descendants will be astounded by our generation’s wasteful nature. They will be horrified that we’re so destructive to our own planet, that we didn’t act on climate change, that we were so overtly misogynistic and racist. Perhaps they will even judge us for eating animals. And with history moving faster than ever before, I believe we will look back with disbelief in as little as a decade.

So what can we do to make sure we are on the right side of history, especially when ethical moorings will change as soon as 2030? What steps can we take to ensure our legacy as a business leader is viewed favourably? I give my five top tips for future-proofing your reputation.

1) Evaluate your company by more than just its ability to make money

We live in a capitalist society, so we claim forgiveness for focusing on the bottom line with every decision we make. However, I predict that history won’t look too kindly on the companies that passively played the game of making endless profits without actively seeking to improve the lives of their employees and customers.

Some argue that we’re moving into a period of post-capitalism, where markets still drive the economy, but intelligent machines are able to overlay human wellbeing as a significant factor to ensure the destructive nature of unfettered free markets is reigned in. In this scenario, it’s possible to imagine that we programme these machines to be optimised not just for profit but also for the quality of life of all stakeholders within a company – i.e. directors, employees, partners, suppliers, shareholders and customers, all in one go.

The interesting thing about this idea is that you don’t need to invest heavily into artificial intelligence to future-proof your organisation for post-capitalism, you just need to start thinking about how you can improve the lives of every person your company touches. What’s great about this is that most HR departments are already seeing the benefits of an empowered workforce, evidenced by the table footballs and treat markets cropping up in the offices of many of the major tech companies, and the switch many corporations are making towards employee ownership or setting up as social enterprises.

But despite the progress we’ve made as a society, it’s not all optimistic. Some of the biggest companies in the world are currently making vast fortunes through exploiting their workers. I predict that unless they change their ways, history won’t look kindly at Walmart, Sports Direct and Amazon, but conversely it will at Riverford, John Lewis and Google.

2) Envisage your customers viewing your decisions on the front cover of a newspaper

In the modern age, ill intent has few places to hide. In just a few years, we’ve come from miniscule recording equipment being the stuff of governments and spies to almost every human on earth having a tiny personal recording device that can instantly share content across the entire planet. Who knows what technology will be developed in the future? What we do know is that it will likely make it even harder for the morally abject to hide.

While on the face of it this could have been an Orwellian nightmare, one thing Orwell got wrong is that he assumed the institutions would be the ones doing the watching. The opposite has happened – it’s put more power in the hands of the general populous. The digital panopticon is not without its dark side, arguably causing lynchings in India and precipitating the Arab Spring. But it also has its good side, by calling out corrupt politicians or business leaders.

The only solution to survival in this always-recording milieu is to act with empathy for your stakeholders in every decision you make. How would they react if your opinions or actions were plastered across the homepage of the Huffington Post?

3) Do what is right, rather than what is negotiable

The idea that everything is negotiable is a hangover from the ‘80s business ethos of dog-eat-dog, survival of the fittest. However, the economy is not a zero-sum game, and getting one over on your partners/clients/customers simply creates a net loss for society. This is also a breeding ground for unsustainable growth, which has led to us pillaging our planet.

I strongly feel that we can resolve many of the problems in the world if we simply reframed how we approached a negotiation, thinking about the human and societal implications of the agreements we reach, rather than just the bottom line.

Large corporations have huge buying power, which has given them even more influence in negotiations. These corporations have identified a shift in public mood, hence why they’re investing so heavily in corporate social responsibility (CSR). But history will look back at the choices the directors of these companies made, and CSR will be cynically viewed in the light of companies investing even more into their procurement departments. If you must, think of your negotiations in terms of a branding exercise with longevity. Because consumers of the future will avoid the brands who operated sweatshops and drove their SME suppliers out of business in their relentless pursuit of profits.

4) In 2030 will your decision still be seen as fair and just?

On the subject of sweatshops, I believe the next #MeToo movement is likely to come from the world of global business, where company directors have allowed so many workers to be exploited in developing nations through low pay and frankly life-threatening working conditions. Additionally they have made decisions that have caused untold damage to the environments of developing nations.

I can envision a time in the near future where whistleblowers call out their bosses when they make morally abject decisions that affect the lives of workers overseas. They will leak emails of the ones who willfully caused rainforests to be cut down or rivers polluted. We’re seeing the shoots of this now, but at the moment it’s the faceless corporations who are being singled out, and they are able to counteract this by increasing their public relations budget. In an age where it’s easy to get hold of emails and call recordings, it’s not hard to imagine the next step being an active campaign by the public to hold the decision makers to account.

Now imagine it’s 2030 and environmentalism, economic justice, and true social/gender/racial equality aren’t just fringe ideas, but are the mainstream. Will your decisions hold up to scrutiny, or will you be held to account by your colleagues, and ultimately the general public? Will you be safe from #DecisionsHaveConsequences?

5) Listen to your moral compass

Whilst we’re on the subject, another thing history won’t look favourably on is the billionaires who hoarded wealth rather than reinvesting it, who facilitated the greatest gap in wealth distribution the planet has ever experienced. I left the world of banking because the system was broken, that it was designed to help drive wealth to the top and keep the rest of us blinded to how inequitable it actually is. My intuition screamed to me that this was morally bankrupt, even though culture currently still praises those who hoard wealth in a hollow pursuit of temporary praise.

I realised I could apply my knowledge of economics and finance to help regions that have been exploited, rather than continue to be part of that exploitation. I also realised that taking a long term, sustainable approach to the economic development of these resource-rich regions would help facilitate greater wealth generation for all, in a way that works in harmony with nature instead of against it. I co-founded Blueprints because in my gut I knew it was the right thing to do, and that I didn’t need to compromise on being rewarded financially for my efforts – indeed the more successful I am, the more successful others become with me. Equally, I’m very aware that I couldn’t live with myself if I were one of the 8 people who held greater wealth than more than half the planet.

What is your intuition telling you? Are you helping to generate wealth symbiotically for yourself and for those less fortunate, in a way that’s harmonious with nature? Or are you purposely holding back others in a hollow pursuit of wealth or status, with little regard for what state you might leave the planet in for future generations? I predict that history will judge those who are dishonest with themselves by much higher standards than we currently feel are acceptable.

ABOUT THE AUTHOR

David Solomon is co-founder of Blueprints, a fintech platform for economic development that connects brands and businesses with local producers and manufacturers. Blueprints exists to promote a new economic model that leads to a more sustainable and equitable society.

Web: https://blueprints.org

Crowdcube: https://www.crowdcube.com/companies/blueprints/pitches/qY9Goq#

Instagram: https://www.instagram.com/solomonk77/

LinkedIn: https://www.linkedin.com/in/solomon77/

Are you making these mistakes and reducing your profit?

Posted on March 18, 2019 Written by Administrator

Everyone entrepreneur should be vigilant when it comes to managing profitability. However, many are not as clued up as they need to be when it comes to understanding profit and what factors impact profit both negatively and positively.

Let’s discuss some of the ways you may be unintentionally reducing your profit and how to avoid mistakes in future.

Bank balance accounting

As a business owner, you’ve heard the phrase “Cash Is King” so many times that it starts to feel like more cash means more profit. You then start to gauge the profitability of your business based on the bank balance. This is a common mistake I see so often. Here are 7 reasons why you might be making a loss in your business despite the cash in your bank account:

You have not paid your suppliers or other creditors
You have received advance cash from your customers
Payroll expenses have not been reflected in the accounts
You haven’t made adjustments for all expenses
You have not taken any reasonable drawings or dividends
The cash is from last year’s profits
You are not paying yourself a reasonable salary

The above list is not exhaustive but covers the common areas where your cash will go. So, the next time your accountant presents you with accounts with less than expected profit figure, have a conversation and go through the above list together with other factors specific to your business.

Cost cutting in the wrong place

You realise the cash at bank is not yours and that you are not making profits. So panic sets in and you’re determined to cut costs to make profits. Here’s the thing though: Not all expenses will have a greater impact on your profits. A study by McKinsey and Co (global consulting firm) revealed that whilst a 1% reduction in fixed costs can have around 2% increase in profits, the same reduction in variable costs has a bigger 7% increase in profits. So instead of going for cost cutting at all cost (no pun intended here) conduct a cost benefit analysis and focus on variable or direct costs first.

Not understanding margins

This is an important indicator to profitability, but it’s vastly ignored or misunderstood among most entrepreneurs. The next time you get your accounts, take the direct costs of sales or direct expenses out from the revenue. Then divide that number by the revenue. That is your gross profit margin. Let’s say your revenue is £1,000 and your materials or direct labour or direct expenses cost you £700. The difference of £300 divided by £1,000 revenue gives you a margin of 30%. This means that for every £1 of sale, you are making 30p in gross profit. This tells you how profitable you are at the gross margin level. You can also compare this 30% to the industry average to gauge where you are at. If this margin is so low, then you’re unlikely to be making net profit because there won’t be enough to cover your overheads.

Losing profit margin

Having ascertained your profit margins of 30%, a common and huge mistake I see is as follows. You go to see a new project. You take your costs. Let’s say 1,000. What do you do next? You apply 30% to the costs. You then quote £1,300 for the job. Sounds familiar? And it makes sense, right? Well not quite. If you take your £1,000 costs from the £1300 revenue (price) you get £300. Now divide that by £1,300. You now get 23%. You’ve just lost 7% profit margin without even blinking.

And this mistake will make its way down to the net profit figure causing you to be less profitable year after year.

Fearing prices increases

Having realised that you’ve been under quoting for jobs or that your costs have gone up, another classic mistake is to put off price increases for fear of losing customers. Yes, you will lose some customers but let’s do some maths. Let’s say you have 20 customers and your price is £1,300 per customer. (£26,000 revenue) If you put prices up by 10%, your new revenue will £28,600. If you lose 10% of your customers (2 customers x 1,300 = £2,600), your revenue will revert to £26,000 but with two fewer customers and less resources needed to service the remaining 18 customers. And depending on how you approach the price increase and how you communicate it, you might be pleasantly surprised that less than 10% of your customers will leave.

Avoiding even small increases

McKinsey studies also revealed that increasing pricing has a bigger influence over your profits than reducing costs or increasing sales volumes.

But here is what most entrepreneurs do not consider doing: Assessing the power of a mere 1% increase in price, 1% increase in sales, 1% decrease in variable costs and 1% decrease in fixed costs.

Next time you sit down with your accountant, ask him or her to run these numbers and show you the impact it will have on your profits. Would you lose a lot of customers due to a mere 1% increase in price?

Miscalculating the effect of discounting

You’ve quoted a price for the job. The customer says, “what can you do about the price” Do you get a knee jerk reaction and offer a price discounts to win the work? Let’s return to the above example (on margins) where you were making 30% margin on sales of 1000. Let’s then assume you offer a 10% discount. Your revenue drops to £900 but you’ve kept your costs the same. Your margins drop to 22% (£900 less £700 divided by £900) The 10% discount now means a 26.6% drop in your margins (the original 30% less the current 22% dividend by the original 30%. This is just the beginning because it gets worse if we look at the impact this will have on the bottom line (net profit margin), assuming you keep all your overheads the same. Were you intending to have a 26.6% drop in your margins by offering a 10% discount?

The point here is to be aware of the profit effect of price discounts and use it to negotiate a better win-win deal for all.

Lack of familiarity with key figures

One of the biggest mistakes is not knowing the profit numbers that matter in your business. Your gross profit margin, profit per staff, profit per client or project, net profit margin, breakeven number, your monthly costs and your prices are all important numbers to track and focus on. If you currently speak to your accountant once a year only to be told how much tax to pay with no access to your key numbers, then it is unlikely you will be able to improve on your results.

The good news is that with so many online accounting apps on the market, (FreeAgent, QuickBooks and Xero), entrepreneurs should no longer be flying blind in their businesses.

A final tip

In his book Profit First, Mike Michalowicz makes the case for opening another bank account and transferring your profits before you make payments to anyone. So, if you’ve worked out that your net profit on every sale is 10%, then a safe way to see and secure those profits is to transfer it straight away to your “profit bank account”. That way you are forced to make do with the remaining 90%.

To summarise

Profit is as essential to business as oxygen is to human being. Your business cannot hold its breath for long without it! Make sure you understand how profit is generated and impacted in your particular business. You can do what is needed to make your business as profitable as possible.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered accountant and tax adviser who advises entrepreneurs on business and profit improvement. Jonathan is the founder and CEO of The Tax Guys.

ABOUT THE AUTHOR﻿

ABOUT THE AUTHOR

ABOUT THE AUTHOR

ABOUT THE AUTHOR