Author Archives: Sarf Malik - Partner

About Sarf Malik - Partner

T +44 (0)20 7874 8802

As a media specialist, Sarf works in a number of media sectors, with particular expertise in television production and broadcasting. He has acted for many ‘indies’ in the production sector, a number of post-production businesses, as well as UK and international television broadcasters licensed under OFCOM.

He is actively engaged in the advertising and marketing space, having acted for many agencies, particularly within the digital space. His publishing experience is also wide-ranging, with extensive experience in the magazine and online sectors.

His role as adviser to such companies over a number of years has given him a range of experience and contacts to call upon. He is well-known in the sector, and has strong links to media specialists at banks and law firms.

Amid growing uncertainty, companies are seeking better analytical capabilities in order to make more informed decisions.

Benchmarking analysis is one way to help them achieve this.

As accountants, we routinely look at firms’ past performance, and produce statutory records such as audits and financial accounts. But an accountant’s job amounts to much more than studying historical, internal data.

Our role is to be a strategic business adviser. It’s our job to look at your market and strategy; evaluate how your business stacks up against them; and identify what you must do to meet your goals.

This is what financial benchmarking enables us to do.

Specialist expertise

Our benchmarking service compares your financial results to a carefully selected group of peer organisations, as a means to assess your efficiency, profitability, productivity and competitiveness.

Benchmarking lets you see how you’re performing relative to your sector and its best-in-class organisations. It provides a detailed comparison of your growth, revenues and your costs – not just the total cost base, but each element of it.

Our benchmarking reports also give you an external, forward-looking perspective, in the form of a five-year industry outlook. This highlights the risks facing your sector, and sets out the broader economic context in which your business sits.

We base our analysis on specialist business and industry reports and data, some of which come from our partner IBISWorld. Their experts collate and scrutinise a comprehensive range of economic, demographic and government data, providing valuable insight into UK industries and their performance indicators.

We then use this information, and the data we have on your own business, to understand your market, assess your competitors, make forecasts, carry out transaction services such as due diligence on acquisitions, and more.

Benefits of benchmarking

In a nutshell, benchmarking allows you to understand how to improve performance, and what are the threats to your future growth.
As such, it adds vital strategic context to your business plan. It helps you to answer essential questions such as:

• How do your objectives align with the prospects for your sector?
• How realistic are they in the current market context – and are they actually ambitious enough?
• Will achieving them mean having to move some functions overseas?
• Will you need to secure new funding?
• Should you make a strategic acquisition (or several) – or look to sell?
• What does the industry outlook mean for your exit plans?

Ultimately, benchmarking helps you see what shape you’re in to deliver against your business plan; and make the right decisions to ensure that you can do so.

Plus, should your strategy require you to raise funds or seek acquisitions, benchmarking reports can be a useful aide when talking to potential investors, or when you’re on the M&A trail.

The detail they provide will help you justify your reasons for borrowing, selling up or acquiring another business. In fact, lenders use them to inform their own credit decisions; and transactions advisors rely on them when making recommendations.

Finally, benchmarking is an effective support tool for contingency planning –particularly important at a time when the business environment is proving so unpredictable.

A regular strategic checkpoint

Given its multiple benefits, benchmarking is something firms should be doing as a matter of course.

But all too frequently, business owners don’t find the time to think strategically about the medium and long-term continuity of their revenue sources.

That’s often because they’re busy with day-to-day operations; they fall into the classic trap of working in the business, not on the business. And they may have nobody on hand to give them strategic advice.

But without an eye on the bigger picture, problems can mount – and become critical before you know it.

One creative agency I know experienced a spate of major projects hitting delays in getting off the ground. The work was won, so the firm’s financial forecasts looked healthy. But delays to the start dates dramatically impaired its cash flow and profit position – an effect the directors hadn’t fully anticipated.

A timely sector review, as part of the business’s regular strategic planning, would have unearthed these pressures, which were affecting the industry as a whole.

Looking at your financial accounts once a year isn’t enough to keep you on top of such threats. That’s why regular benchmarking is a must for ambitious businesses that want to safeguard their growth prospects.


Comment on this...

We’re delighted to congratulate Melissa Varney on her recent exam success. Melissa joined Goodman Jones in September 2016 and her hard work paid off when she achieved the highest pass mark both nationally and internationally for her paper in Business Taxation Planning.

As recognition for this tremendous achievement, Melissa has been awarded The Little Prize by the Institute of Chartered Accountants in England and Wales.

Well done Melissa!

Comment on this...

Creative companies in the UK frequently find themselves doing business across borders, as highlighted in our blog on international expansion.

Trading overseas creates the need to invoice clients and pay suppliers in local currencies – exposing a firm to the vagaries of the foreign exchange (forex) markets.

Forex exposure in action

Let’s take a London-based production business as an example. It lands an assignment to create a programme for an American broadcaster – which wants to pay for the work in US dollars.

The price is agreed before the project starts, but producing the TV programme takes several months. So the UK firm invoices its client, receives payment in dollars, then converts the dollars to sterling, some time after the price was set.

Similarly, a publisher buys creative assets from around the world, to sell on at a fixed price in the UK. Again, there’s a time lag: this time between paying for the assets in foreign currencies, and receiving income for them in sterling.

In both situations, there’s a risk that exchange rates might move in the wrong direction in the interim. The result: they will receive less revenue in sterling than projected, or pay a higher price than budgeted, damaging profitability and cash-flow.

A clear and present danger

Getting forex wrong can cost a creative business thousands of pounds. The bigger the international transaction, the greater the risk. Exchanging currencies at the wrong time can even put a firm’s future at risk.

From a UK perspective, sterling has fallen significantly against the dollar and the euro since the EU referendum, in response to the ongoing uncertainty over Brexit. The currency risks now facing British firms are more serious than they’ve been for a while.

In my experience, creative firms often fail to realise that their business is exposed to forex fluctuations. They may think that they’re too small for it to be a problem; or that as a creative business, the money markets aren’t their concern.

But currency risk affects any business that trades internationally. And doing nothing about it is not an option. Company directors have an obligation to mitigate all significant risks facing their business.

Hedging currency risk

So where does this leave creative firms with international business operations? What can they do to manage their currency risks, and protect their profitability from exchange rate volatility?

A simple solution is to hedge. Hedging against adverse forex fluctuations effectively ‘insures’ a business against the negative effects of changes in currency values.

Currency hedging can be a complex undertaking; but there are two relatively simple mechanisms commonly used in the creative industries:

  • Forward contracts

A forward contract fixes the exchange rate received at a specified future date, which can be up to a year ahead.

Let’s assume that a marketing agency needs to pay a supplier a sum of $100,000, three months from today. The firm could take out a forward contract with a bank or FCA-registered forex broker, which will guarantee what exchange rate the agency will get on that day.

With forward contracts, there is no financial gain or loss. If the exchange rate moves in the agency’s favour in the interim, it will lose out on that benefit; but the advantage is that the currency risk is managed.

A further benefit of a forward contract is that you don’t have to use all of your cash-flow upfront, as you would if you simply purchased the currency on the day of the transaction. You may need to pay a deposit upfront, and a commission on the overall amount.

  • Participating forward contracts

A participating forward contract works in the same way as a forward contract, but with an important distinction: it allows you to benefit if the exchange rate moves in your favour between when the contract is made, and the time of the actual transaction.

This means that you’re protected from adverse exchange rate movements, but benefit from favourable ones.

Pricing structures of participating forwards can differ from simple forward contracts, as can the amounts required in terms of deposits and commissions.

To a director of a creative business, terminology like hedging and forwards may appear quite technical. But don’t be put off: forwards and participating forwards are tried, trusted and tightly regulated financial transactions. Millions of them are carried out on the international forex markets every day.

Expert support

Forex hedging isn’t just for large corporates and sophisticated investment professionals; it’s an important tactic for any business with currency exposure.

As trusted advisers to many creative firms, Goodman Jones can help you mitigate currency exposure, and ensure your firm meets its risk management obligations. We can recommend suitable banks and forex brokers, and advise on how to treat your exchange transactions for tax purposes.

We can also help you to report them accurately in your financial statements. Hedging currency risk is simple; but that can’t be said for the relevant international accounting standards. These apply to all firms that use currency markets, not just publicly listed ones. And more companies are now affected by the new UK GAAP FRS 102 regulations, which also have implications for how you account for forex hedging.

Our experts know the accounting rules surrounding forex inside-out. Our support has helped creative businesses save hundreds of thousands of pounds a year as a result.

Get in touch if you’d like to discuss your firm’s currency risks.

Comment on this...

The war for talent is fierce in the creative sectors. And it can be particularly tough for smaller businesses. They must compete for the best people against larger players, with better-known brands and deeper pockets.

To retain the talent they require, creative businesses need to create a culture of performance, reward and recognition. In my experience, this is something many of them struggle to do.

The ‘ownership’ incentive

The most common approach to talent retention in the sector is to offer key individuals ‘part-ownership’ of the business. This tends to be in the form of share options under an approved Enterprise Management Incentive (EMI) Scheme.

EMI schemes offer employees the option to acquire shares in the company. Employees can usually sell these in one of two scenarios: either after a defined period of time; or if and when the company is sold (an exit event).

The objective behind EMI schemes is to encourage loyalty among the creative talent the firm wants to retain. The thinking is that scheme members will work hard, perform to their best, and stay with the agency in the hope of a future pay-off.

A big advantage for staff is that they don’t have to buy the shares upfront. The shares are paid for from the sale proceeds, once the employee ‘cashes in’, if that’s at an exit-event.

What’s more, EMIs are very tax-efficient, as proceeds from the sale of shares are treated as capital gains, rather than income. That can mean the difference between a 10% and 45% tax rate.

The value of the share options is fixed at the point at which they’re granted, and often forms the basis of the purchase price. This value is locked until the point at which the vesting conditions are satisfied, irrespective of any growth in the value of the firm – and therefore the shares – in the meantime. The employee’s contribution to the success of the company is rewarded through this ‘gain’, and is taxed at just 10% on exit.

The downside, however, is that their value is hypothetical. For staff to benefit, the business must grow in value over time; and in some cases, it must be sold while they’re still at the firm.

EMIs undoubtedly have their place in the creative industries, and can be especially attractive to experienced senior managers.

But they won’t work for everyone, and possibly not even for the majority of the people you employ. Shares in a business that may or may not be sold some day won’t always appeal to the ambitious young stars that creative agencies must recruit and retain.

Bonus sharing

So what else can creative firms do to hold onto vital talent?

Bonus-sharing schemes are another option worth considering. These offer employees a pre-determined percentage of the value of a pre-defined bonus pool, if a common objective is achieved. For example, if a team achieves certain objectives for a client; or if the company meets its overall performance target.

This can help foster a sense of common ownership, without giving employees shares that may or may not benefit them in the future – and which they might not actually want. And it can be particularly motivating if the scheme is tied to a clear, transparent target for people to work toward; and if performance is evaluated against a measure they can influence.

At the same time, however, each individual’s reward is still tied to the performance of others beyond their control. This can be off-putting for some people; and it may cause resentment among genuine high-performers if the target isn’t reached.

Ask the audience

These are just two options available to creative businesses looking for ways to retain their best talent.

There are many more approaches to incentivising key individuals, which can involve more than just financial rewards. There’s a whole range of intangible benefits that can mean just as much to creative talent.

These include working in a motivating working culture; parent-friendly HR policies; access to high-profile client experiences and exciting career opportunities; or simple things like extra holidays or Friday afternoons off.

Then there are the more unusual ‘perks’ that many creative agencies are good at providing: pool and football tables, onsite bars, cool workspaces, company weekends away and much more.

The key to finding the right combination for your firm is to communicate with your workforce. Ask them what they want from their reward packages. Then create a strategy that reflects their preferences, while making clear what the business values when it comes to performance.

How we help

Goodman Jones has extensive experience of assisting creative businesses with their reward strategies, and with the resulting tax implications.

We can help to:

  • implement EMI schemes working alongside your lawyers,
  • provide the required agreement on valuations with HMRC,
  • structure bonus schemes,
  • advise on the most relevant and appropriate recognition measures and
  • advise on appropriate HR strategy and supporting policies
Comment on this...

“The UK’s reputation as a leader in the creative industries means that we are in a formidable position to take advantage of international opportunities.”

Taken from the CBI website, these words ring true in my experience. Many UK creative businesses lend themselves naturally to international expansion.

There are several reasons for this. There is strong overseas demand for Britain’s creative output. Creative services are relatively easy to export. And many of the country’s creative firms are based in London, a location that’s renowned as a global business and creative hub.

At the same time, the domestic market for many creative services is becoming increasingly saturated. With growth at home sometimes more difficult to achieve, international expansion becomes the logical next step.

Home or away?

Faced with international opportunities, it may be tempting to try to service them from the UK. After all, it’s simpler and less demanding than establishing a foreign operation.

But there will be limits to how much business you can do from your headquarters in the UK.

As every creative knows, relationships are everything in this business. The purchasing decision-makers for your services will be based in the local market, and may feel more comfortable dealing with a locally based supplier.

You’ll also encounter more formal barriers: restrictions on foreign trade; import tariffs; government incentives to buy from local suppliers; and currency controls, like those currently in place India.

What’s more, with Brexit looming, and the US administration striking a protectionist tone, exporting your service from the UK looks set to become increasingly difficult to do.

Ultimately, then, you will find you need a local subsidiary to take full advantage of the international openings available to you.

Going local

When establishing a local presence, you’ll need to identify its optimal structure from a financial perspective. Taxation can be one of the more challenging aspects in this regard. In the UK, we currently enjoy a low rate of business tax, now at 19% on business profits for companies. One of your objectives should be to achieve the lowest possible real tax rate on your international dealings.
For this, you’ll need expert technical advice on two crucial – and complex – issues:

1. Transfer pricing: Designing the most tax-efficient terms of trade between your foreign entities and UK headquarters.

2. Tax regimes: Making best use of the tax treaties in place between the different countries you trade in, to find the most tax-efficient way of treating your international profits.

Getting your international structure right could save your business tens or even hundreds of thousands of pounds.

But how do you make it happen?

It’s essential to have a primary adviser in the jurisdiction in which you’re headquartered. You’ll need the technical input of an expert who can:

• understand the intricacies of international tax treaties
• recommend how to structure your overseas operations
• know how to repatriate your profits as tax efficiently as possible

Of course, you’ll also need a network of local accounting partners in each of the territories where you have subsidiaries. Without these, it won’t be possible to incorporate, meet local financial reporting requirements, and so on. Your primary adviser should be able to recommend suitable practices.

In my experience, businesses that get their international structures right create far more value than those that simply export their services from the UK – which can lead to more valuable exit events.
Goodman Jones has extensive experience of assisting creative businesses with their international trade. As well as advising on international tax matters, we can help support your strategic decision-making when considering entering a foreign market. We can also recommend in-market accountancy partners via the GMN International association of accounting firms.

Comment on this...

We are hosting an event aimed at business owners, whether or not you are contemplating an imminent sale. It aims to help focus thinking about when, why and if a sale is the best course of action for you and then the best way to extract a strategic price, with little or no risk to your business.

Neil Ackroyd of Opus Merger & Acquisitions will be leading this session.

Neil Ackroyd was a deal leader with Livingstone Guarantee and KPMG, prior to founding his own boutique, which he ran for 12 years. He has started, run and sold his own business as well doing countless deals for clients. This understanding and empathy gives him a unique perspective.

Neil says, `Having been there, I want to help owner-managers achieve the pot of gold and freedom that they deserve after years of hard work and self sacrifice‘.

The session is therefore designed to give you some take-away points which I’m sure you will find helpful.

Date: Thursday 17th September @ 5.00pm
Venue: 29-30 Fitzroy Square

There is limited capacity and we will have to allocate places on a first come, first served basis.

Please email if you are interested in attending

Comment on this...

HMRC have published their annual R&D tax credits statistics report  and it leaves me with one key question.

Why are so few of the claims made each year from the heart of innovation, the media sector?

The industry sector analysis in the report supports our view that the media sector/creative businesses may be missing out on claims. Although not completely reliable it shows that the vast majority of claims are in manufacturing and in professional, scientific and technical services, with information and communication only third. Based on our own experience with our creative business clients we think there should be more claims arising from the media sector due to the high level of innovation many such businesses employ.

So, what is deterring more creative businesses from making R&D claims?

HMRC themselves ask potential claimants to consider the following questions to help identify if qualifying R&D activity exists:

  1. What is the scientific or technological advance?
  2. Why was the knowledge being sought not readily deducible by a competent professional?
  3. How and when were the uncertainties actually overcome?
  4. What were the scientific or technological uncertainties involved in the project?

The words used may in fact deter applicants with reference to science and technology. On face value many might consider that, although involved in activities requiring innovation, they don’t pass the above test but we should look again. We have successfully submitted claims both for cash rebates as well as for a reduction in the main corporation tax liability, around the idea of innovation in relation to improvements in business processes such as the delivery of products and services to the consumer.

With the tax claim enhancing qualifying expenditure at up to 125% of the amount spent, a successful claim can currently save tax at 20 or 21%, depending on the size of the company, or in the event that the company is loss-making, a route is available for 14.5% of such enhanced expenditure to be reimbursed in cash.  Either way, that’s a potentially huge and positive benefit.

In an ever increasing digital world of convergence media businesses may be involved in R&D activity unknowingly and miss the chance to make a valuable claim.

Comment on this...