Business Essentials: It's a fit-up - shop constructor floored by the bureaucrats

Out of the loop on changes in legislation, Newman Scott fears being caught out financially and legally. Kate Hilpern reports

People who commit large chunks of cash to their business can't always do so with a view to making a return on their outlay, as John Graham knows all too well.

The director of Newman Scott, a shopfitting company on Teesside, explains: "We have just invested £1.2m in new facilities. Part of this involved expanding our factory, the sole aim of which was to increase profits.

"But having done that, we were forced to make a further investment that was driven by regulation. In this case, it was related to health and safety - an area where regulations are often tightened up very abruptly.

"So we would like to know if there is any way of planning for this kind of enforced investment in the future."

Unless businesses like Newman Scott spend the money required to keep up with rules like these, they can suddenly find that they are being run illegally and may even be shut down, says Mr Graham.

The Working Time Regulations are his latest concern. "If the mandatory 48-hour maximum working week is brought in, we will have to make another major investment," he explains. "After all, our clients demand that we convert shell units into finished shop floors in a very short period - often as little as 12 weeks. We would probably have to triple our workforce to keep to this timescale."

Shopfitting, says Mr Graham, is a specialised industry. "It is quite unlike building and construction, where the project period can be measured in months or even years. For example, we are currently working with the retail chain Zara. At its Nottingham store, we have had to strip a Grade II-listed building back to its bare bones and then have it ready and waiting for Zara to put its clothes in within 13 to 14 weeks."

Mr Graham insists he has no argument with the extent of the regulations that Brussels and the current British Government place on businesses such as Newman Scott. "We agree most of it is necessary," he says. "The problem is that we tend to find out about new regulations very shortly before they are passed, so we can't really plan for them. It makes it very difficult to have a strategy for future investment in the business."

Established in 1993, Newman Scott is now among the top 35 shopfitters in the UK, working with names such as Miss Sixty and Austin Reed as well as Zara. While turnover in its early days was around the £2m mark, it is now between £13m and £14m a year. And from being loss making in 1993, the company now makes a sustainable £500,000 annual pre-tax profit. "Our five-year plan is to move this up to £20m turnover, with a £1m pre-tax profit per year," says Mr Graham.

In fact, he adds, he has got to the point where he thinks he can achieve this with no further hard investment, except in training and personnel. "But we are afraid to sit back and think 'that's that, then' when we don't know what the Government will throw at us next."

www.newmanscott.co.uk

WHAT THE EXPERTS SAY

Gordon Elliott, director, National Association of Shopfitters

"New regulations are usually introduced after a period of consultation, but rarely are small to medium-sized firms directly included in the consultation process. They need, therefore, to find ways of keeping up to date with what is happening.

"Trade associations are there to represent the views of their sector and are also able to give important advance notice of pending rule changes. Businesses that keep up to date in this way will show awareness and responsibility, and this will help to create a positive image with clients.

"Awareness can also lead to positive savings, not least in the cost of insurance premiums.

"Training staff to make them capable of assessing and implementing regulation is essential and, if properly done, will provide real value in reducing the expense of enforced investment."

Vanessa Robinson, adviser, organisation and resourcing, the Chartered Institute of Personnel and Development (CIPD)

"Most legislative changes have long consultations followed by further periods before implementation is required. So if Mr Graham ensures he is kept informed of pending legislation, this will give him sufficient time to adapt. Such information is publicly available: the CIPD (www.cipd.co.uk/employmentlaw) provides comprehensive summary information.

"More generally, Mr Graham should be aware that for Newman Scott to attain its five-year growth targets, it will probably need to change and evolve, requiring investment. Research shows that companies typically undergo reorganisations every three years, in response to internal and external drivers. And such changes involve investment in new structures, systems and processes.

"'Sitting back' is not an option if Newman Scott wishes to maintain its market position, regardless of legislation."

John Crampton, vice-president in manufacturing, Capgemini UK

"Regulation and compliance present particular challenges for the fast-paced retail sector. So Mr Graham is right to identify the need to plan ahead.

"He should be working to a short-, medium- and long-term business plan, and his financial forecasts should incorporate an operational contingency fund to cover additional expenditure related to new British and European Union regulations.

"He would also be wise to conduct a risk audit incorporating employment, premises, machinery and health and safety requirements. Forward planning is essential, but many companies are so concerned about the cost of compliance with new laws that they do not act until the last possible moment.

"However, failure to plan ahead simply leads to greater confusion and higher costs.

"Mr Graham should also implement a business continuity plan, which will help him prepare for other 'surprises' that may occur in the future - not just the costs of complying with new laws."