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Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

Is another bank mis-selling scandal brewing?

 

The full extent of the banks’ questionable behaviour following the 2008 crash has seemingly not yet played out as suggestions of yet another possible mis-selling activity surface.

Many SMEs are still awaiting compensation after being mis-sold insurance in the form of hedging products to protect them from potential interest rate rises.  Libor rate rigging is still under investigation and the recently-published Tomlinson report has prompted Business Secretary Vince Cable to refer RBS’ approach to dealing with companies in financial difficulty for investigation by the Financial Conduct Authority and the Prudential Regulation Authority.

Mr Cable is plainly going to be an even busier man following recent revelations in the Sunday Mail, the FT and the Times, that banks may also have been taking advantage of the Government’s five year-old Enterprise Finance Guarantee (EFG) scheme whereby they may have sought to repair their balance sheets at their SME clients’ expense.

Reportedly some SMEs have had their overdrafts cancelled by their banks who have then offered loans under the EFG scheme. The benefit for banks is that EFG loans do not require the same level of reserve capital as overdrafts but it is not clear whether this was the reason behind the withdrawal of overdrafts.

It seems that many banks have not fully explained the terms of an EFG loan.  Loans under the EFG scheme are intended for businesses that do not have sufficient assets or track record for a conventional loan where the scheme guarantees the bank 75% of any loans should the borrower’s business fail.

Unfortunately, many SMEs appear to have been given the idea that should they fail they would only be liable for repayment of 25% of the outstanding debt.  In fact they are liable for the full amount and the banks get the 75% from the Government ONLY after they have exhausted the recovery terms of the EFG loan which require security over the business assets and personal guarantees from director/shareholders. As such the government only pays out under the scheme after the company is formally declared insolvent and the guarantors are made bankrupt.

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Business Development & Marketing Cash Flow & Forecasting General Rescue, Restructuring & Recovery Turnaround

Unbalanced recovery – surprise, surprise

 

Over the past few weeks there have been a number of profit warnings from high profile companies, including Serco, Pearson, RBS, Debenhams and Morrisons, mainly based on their sales in the last quarter of 2013.

Subsequently the Governor of the Bank of England, Mark Carney, said that the so-called economic recovery was “neither balanced nor sustainable”.

Then last week Chancellor George Osborne, speaking to business leaders in Hong Kong, referred to the economy as being “not secure” and “unbalanced”.

Prior to these developments the overall message coming from Government was far more positive with unemployment falling faster than expected and predictions that the economic recovery would consolidate throughout 2014.

There had been plenty of voices warning that the recovery was far too dependent on consumer-led spending and the property market but they went unheeded.

What has changed?

Now it seems the ONS figures due to be released next week are expected to reinforce this latest message of an unbalanced and fragile recovery too reliant on consumer spending.

Could it be that we are being prepared for an unpalatable budget which the Chancellor is due to deliver in three weeks’ time? 

The message for SMEs remains that caution is warranted, close attention to cash flow is still in order and ever greater efforts to grow are needed.

As an SME owner are you more confident than you were a year ago  – or less?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are you a collaborator?

 

It is widely believed that larger companies are reluctant to engage with sole traders and SMEs because they feel they will be too small or inexperienced to take on a bigger contract.

But with business finance still reported to be hard to get, skill shortages widely reported and SMEs very nervous about taking on any debt it can be frustrating or not cost effective to try to grow a small business to be able to offer the range of expertise some potential bigger clients may expect.

An alternative solution may be to collaborate with related businesses as partners when making bids.  As long as they are organisations the SME knows well and trusts this does not have to mean entering into a formal long-term partnership but it does require excellent communication and agreeing on some basics.

Examples of such collaborations could be a web developer offering a combined service with a marketing content writer and a graphic designer to offer an all-in-one service for clients looking for marketing support.

Sole traders who specialise in carpentry could collaborate with painters, plumbers, bricklayers and so on.

The advantage in collaboration for the client is that they get all the services they need for a project with one central point of contact for co-ordination and communications. 

The advantage for the small trader is the ability to bid for larger contracts by offering a full set of the skills required.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Change is now the only constant

 

Consumers and clients are fickle, the pace of life is accelerating and it’s all thanks to the internet.

It may be a bit harsh but the SME that wants to do more than just survive needs to not only ensure the quality of its products or services and of its customer service, but also to be alert to potential new innovations and changing customer habits.

Here’s an example – a cafe in London recently switched from charging customers for coffee to charging customers an hourly rate for the time they stayed there.  The owner had noticed that his cafe had become popular with self employed people with laptops looking for a place to work.

The change has reportedly been popular with customers and illustrates the point that these days it pays to be flexible, responsive and therefore change the business model to meet new situations.

Here’s another example.  At one time a business website would likely have been seen either on a PC or a laptop.  Not any more. Now web developers have to produce something that will accommodate itself to these and to tablets and mobile phones.  It’s called responsive design.

A business model does two things.  It can set short, medium and long term financial and growth goals but it is also a daily and weekly satnav to be referred to often.

Increasingly, savvy businesses need to build a responsive model that can cater to changing circumstances as well as keep them on track for the longer term.

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Business Development & Marketing Cash Flow & Forecasting General Turnaround

Self Employed? You need to think like a Business

 

The government has been playing up a rise in disposable income, culled from figures compiled by the Office of National Statistics (ONS), but there is one fact that has been conveniently ignored.

This is that the ONS pay figures do not include earnings by the self-employed.

According to the research organisation the Resolution Foundation, the numbers of self-employed have increased by 26 per cent between 2002 and 2013 while their median reported income had dropped by 28% (approximately £4,000) between 2001 and 2010.

The TUC estimates that  540,000 of the approximately 1 million jobs created since 2008 have been through self-employment.

These are the people who supply the “outsourced” services – from plumbing to IT to Marketing to Consulting – that SMEs rely on.  They are also themselves SMEs as far as HMRC is concerned, where they are classified as sole traders.

No matter what their skills, arguably these are micro businesses with potential to grow, and as the economic recovery continues, they will hopefully be able to benefit.

But like any business, even a one-person micro business needs to set goals, have a business plan, understand finance, and have a marketing strategy for advertising and promoting themselves to generate business leads. 

Furthermore they need a passion and determination to succeed.  Being self-employed can be a lonely existence but need not be with the support of mentors, local networking and business organisations, industry groups or business advisors, any and all of whom can make a huge difference.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Family businesses surviving the centuries

 

According to the Institute for Family Businesses there are 3 million family firms in the UK and they represent two in every three UK private companies.

Moreover, some of these companies have endured and prospered for almost 500 years.

A recent article in the BBC magazine http://www.bbc.co.uk/news/magazine-25711108 provided a fascinating insight into some of these firms as well as asking how they had managed to survive for so long in a changing world.

They were a diverse bunch, from a family butcher that started with a market stall in Dorset in 1515, to a building company from Kent that has been trading since the reign of Elizabeth 1.

Two things stand out clearly in their survival.  They are attention to customer service; and a willingness to innovate.

Arguably trading conditions have never been tougher than they are in this the 21st Century with customers able to access global suppliers so for any SME owner who is competing in the current market these stories provide a lesson and encouragement.

With a positive attitude, with support from an experienced business advisor as and when needed, and with proper planning and focus on cash flow many SMEs could still be around for the next half millennium.