Category: Banks, Lenders & Investors

Walk away!

The most recent survey of small businesses carried out by the FSB (Federation of Small Businesses) has found that at least a third of small businesses have seen late payment of invoices increase over the last three months.

Its new chair, Martin McTague, has called on the Government to include in the long-delayed audit reforms a requirement for a board-level role with responsibility for payments.

Small Business Commissioner Liz Barclay has urged small firms to be more “brave” and reject unreasonable payment terms.

She said: “Some small businesses are beginning to say, ‘No, I’ll walk away. I’m not accepting 90 days’.”

Ms Barclay argues that small businesses have more power than they think because they drive the success of larger companies and the latter “are putting their reputations on the line by failing to pay smaller suppliers on time.”.

Fine words, but can you afford to walk away?

Perhaps the question should be “can you afford not to walk away?”

After all, if you have done work for a larger company and they are delaying to pay for it, then you are effectively giving away your services for free, and your business still has all its own costs to pay.

Why should you risk insolvency in order to prop up a larger business?

Of course, you still need to manage your own costs and finances, and we have a free tool to help you.

Download our Free Cash Management Tool.

Banks, Lenders & Investors Cash Flow & Forecasting

Is your bank manager supportive?

Post author By k2admin
Post date February 17, 2022
No Comments on Is your bank manager supportive?

Now, perhaps more than ever, a business’ relationship with its bank is going to be crucial.

With interest rates rising along with inflation and energy prices, there is even more pressure on businesses than there was at the height of the pandemic.

As restrictions ease and Covid loans have to be repaid, at the same time businesses are keen to return to full production and activity.

It is likely you will need your bank manager’s support and if you haven’t previously taken the trouble to cultivate a good relationship it is time to start doing so.

Key to this is convincing them that you are on top of your business finances, and our free to download cash management plan will help you to know your situation and demonstrate it to your bank.

You can download it here.

But to convince your bank that you are on top of things the manager will want to see evidence of integrity, that you have a plan setting out clearly what support you need and that the plan is convincing, not only that it can work but also that you can deliver it.

Latest figures from the Insolvency Service for January this year showed that the number of corporate insolvencies had doubled compared with January 2021. Moreover, there was a prevalence of liquidations rather than companies going into administration, suggesting that these businesses had no way forward for their survival.

To protect your business it makes sense to ensure it has access to funds for survival and growth when it needs them and key to that is the relationship your business has with its bank.

This article from K2 looks at what you can do to ensure the bank’s support.

Have a read and message us if you’d like a chat.

Banks, Lenders & Investors

Is it time to rein in the Rentiers?

Post author By k2admin
Post date December 2, 2021
No Comments on Is it time to rein in the Rentiers?

Businesses have now faced more than two years of uncertainty thanks to the constantly-changing environment caused by the Covid 19 Pandemic.

It is estimated by Begbies Traynor in its latest Red Flag analysis that in the third quarter of 2021 562,550 businesses were in “significant financial distress”, with a 17% rise in “more serious critical business distress”.

What businesses need, therefore, is some measure of calm and steady progress as far as any business can ever rely on these things.

Investors are among the most important in providing these conditions.

But for years now, many investors have been what are called “rentiers”, interested only in short term gains from the money they put into a business without being particularly invested in the future of that company.

Rentiers are deemed to be willing to shift their money elsewhere if they feel their rewards are not large enough or fast enough.

While no business would deny that it has obligations to deliver results for customers, shareholders and other investors, it is reasonable in these uncertain conditions to ask that investors show some patience and understanding.

The Government, as reported by CityAm, has invested in this idea by creating “British Patient Capital (BPC)” to which has committed more than £1bn of commitments itself. This has so far attracted further £4.8bn of investment from third parties.

Ultimately, supporting a business and paying attention to its longer-term survival can only benefit investors looking for some security and stability on their returns.

It is a philosophy upon which K2 Business Partners is founded and acts whenever it gets involved in supporting any business in difficulty.

Of course, our involvement depends on a thorough analysis of the state of the business, but you can be sure that once committed K2 is with you for the long haul.

Banks, Lenders & Investors Interim Management & Executive Support Rescue, Restructuring & Recovery

Why not call on some fresh talent and investment?

Post author By k2admin
Post date October 22, 2021
No Comments on Why not call on some fresh talent and investment?

As if businesses did not have enough to deal with as they strive to get their businesses back on track following the turmoil of the last 18 months now there are predictions that interest rates will have to rise to damp down inflation.

The Bank of England (BoE) governor, Andrew Bailey, has been reportedly arguing for the move arguing that forecasts of inflation rising to 4% if they should happen are twice the 2% target set for the BoE.

Is this the last straw?

It could be for those businesses paying back covid- loans if those loans were not given at fixed interest rates.

You don’t have to lose your business, however.

While there is no denying that restructuring a business can be challenging for its board and founders it can be a better option than throwing in the towel, provided you get the right kind of help.

Unlike other restructuring experts we at K2 have a history of building a portfolio as owners rather than remaining as just advisors. We focus on buying companies in distress to grow for our own portfolio and we have 20 years’ experience of doing this.

The emphasis is on Partnership, hence our name. We are with you for the long haul.

Obviously, there has to be at least a possibility that your business can be made viable so our first step is to do an exhaustive review of every aspect, from finances and liabilities to processes.

You can use our free cash management tool to itemise the details of your business’ financial circumstances to help you to provide us with the information we will need.

https://www.linkedin.com/smart-links/AQG7fCQTtXx4Zw/0a02193a-12a8-432b-8b19-81bc4f8a8b74

Banks, Lenders & Investors General Insolvency

Director scrutiny over covid loans

Post author By k2admin
Post date July 26, 2021
No Comments on Director scrutiny over covid loans

Closing an insolvent business is a horrible experience but disqualification from being a director is even worse.

In a recent case in the North of England the director of a retail business was disqualified for 11 years after it was concluded that he had overstated his turnover when claiming a Covid Bounce Back loan.

The regulations state that eligibility for a loan was in doubt given that they should be for less than 25% of the previous year’s turnover.

It appeared that the business had already ceased trading the previous year but insolvency officials said he should have known that turnover had been insufficient to qualify for the loan, which was paid out in May 2020.

It also found that he had failed to provide sufficient records to establish what the funds were used for.

This situation emphasises the duties on directors to not only keep accurate and detailed financial records but also to ensure they comply with all their duties when applying for a Covid-related BBLS or CBILS loan or when a business is insolvent.

Any investigation of formal insolvencies will look closely at loan applications and the use of funds.

Disclosure and directors’ reports should cover the circumstances of any loan.

Our Board Briefing on inoculating your board during coronavirus is helpful for directors in understanding their legal duties.

You can view it here: https://www.linkedin.com/pulse/directors-need-understand-duties-liabilities-whatever-tony-groom/

It is distressing enough to have to deal with closing down a business into which you have put your time and energy – much worse is to be disqualified for regulatory failures and be prevented from starting afresh.

Banks, Lenders & Investors Cash Flow & Forecasting

The 12 month loan repayment holiday has ended

Post author By k2admin
Post date June 9, 2021
No Comments on The 12 month loan repayment holiday has ended

The 12 month loan repayment holiday has ended. Small businesses are due to start repaying Covid support loans following the end of the loan repayment holiday.

Bounce back loans were first launched last May, and banks extended £46.5bn to 1.5m SMEs but reports say that already a fifth of SMEs have asked for more time to pay.

One accountancy firm, Mazuma Accountants, says a survey they carried out at the end of May revealed that as many as 39% of small businesses believe they would struggle to meet repayments.

According to the FSB (Federation of Small Businesses) many are unaware of banks’ pay as you grow schemes, which could help with managing the repayments but warns they should ensure they are clear about the impact schemes could have on their future credit needs.

The business environment is likely to remain tricky for many for some time to come and it will take time to ramp up to full activity, especially in the face of uncertainty about lockdown easing, materials shortages, in construction in particular, and also the difficulties some are having filling vacancies.

In the meantime we would always advise that you focus closely on your cash management and we have a free tool to help you. Download it here:

https://www.linkedin.com/smart-links/AQG7fCQTtXx4Zw

Banks, Lenders & Investors Cash Flow & Forecasting

Cash flow and Bank management

Post author By k2admin
Post date April 28, 2021
No Comments on Cash flow and Bank management

The potential for unmanageable debt and for overtrading are identified as two key pitfalls for businesses as they seek to recover from lockdown.

In the latest red flag alert from Begbies Traynor warned that 93,000 more UK businesses had “weakened to the point of ‘significant financial distress’ in the quarter to the end of March”.

The company predicts that even more companies could slide into insolvency as lockdown eases, citing the reasons above as two likely drivers.

K2 Partners has warned before about the dangers of overtrading, when a business tries to ramp up its activity too quickly, running up a big rush of sales on credit without the cash to pay its suppliers.

Our advice is to always and stringently monitor and manage cashflow and beware of being misled by Balance Sheet figures, which can paint an over-optimistic picture because they include fixed assets and possible new money from investors.

K2 will soon be offering a free Cash Management tool for businesses to download and use.

In the meantime, businesses should also concentrate on maintaining a good relationship with their bank and there is some guidance here https://www.linkedin.com/smart-links/AQF0zn8hTCKbSw to help you.

Banks, Lenders & Investors

Businsses should consider the RLS implications carefully

Post author By k2admin
Post date April 18, 2021
No Comments on Businsses should consider the RLS implications carefully

Can your business cope with another loan?

The latest Government initiative to help businesses to get back on their feet following the pandemic lock-downs came into effect on April 6, 2021.

The Recovery Loan Scheme (RLS) announced in the March budget is only available until December 31, 2021 and so far, just 18 lenders have signed up to participate.

They can be found here on the British Business Bank website.

Be aware that ultimately the lenders will decide whether to approve your application and not every accredited lender can provide every type of finance available under RLS.

There are some protections for borrowers in that lenders will not be allowed to take any form of personal guarantee for facilities of £250,000 or less. Above that amount lenders cannot include Principal Private Residences in the guarantee agreements and that the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied.

Loans will include 80% government guarantee and interest rate cap and can be used in addition to previous loan schemes such as BBLS and CBILS.

What are the types of RLS?

term loans or overdrafts of between £25,001 and £10 million per business
invoice or asset finance of between £1,000 and £10 million per business

What is the maximum loan period?

up to 3 years for overdrafts and invoice finance facilities
up to 6 years for loans and asset finance facilities

Who is eligible?

You can apply for a RLS if your business is trading in the UK, would be viable if it were not for the pandemic and has been adversely affected by it. You cannot apply if your business is in collective insolvency proceedings.

What to consider if you are thinking about applying for a RLS

Essentially, it comes down to whether a loan would be affordable or not given the relatively short repayment terms.

Do you regularly monitor your cash flow and once your business is able to trade normally the state of your order book and overheads? What is the value of any fixed assets your business has?

Have you already taken advantage of any of the other pandemic emergency loan schemes? Will you be able to manage the repayments on top of all your other business overheads?

If your bank is one that has signed up to the scheme then it may make sense to approach them first as you already have a, hopefully good, relationship with them.

K2 Business Partners has published a number of guides to managing your relationship with your bank and these are available here

There is also a Board Briefing on the topic of your relationship with your bank here

If you are uncertain about whether to take advantage of a loan under the RLS perhaps it will help to talk it over with an experienced restructure and recovery advisor first.

Tony Groom of K2 Partners has more than 20 years’ experience in advising businesses and you can get in touch with him via a message on LinkedIn, or by calling 020 7720 8000 or emailing: info@k2-partners.com.

Banks, Lenders & Investors Cash Flow & Forecasting

Does your business really have enough cash?

Post author By k2admin
Post date March 11, 2021
No Comments on Does your business really have enough cash?

Nursing your business through the pandemic lockdowns successfully is one thing, but there is a danger in ramping up activity too quickly as the situation eases.

Accountants call it over-trading.

This is when a business runs up a big rush of sales on credit without the cash to pay its suppliers and can rapidly become insolvent.

It is easy to be misled by the figures on the balance sheet, which may paint an over-optimistic picture of the cash flow forecast, especially when some of this is predicated on fixed assets and on the prospect of new investment from lenders or investors.

Instead, the business should focus on cash management, which gives a much more realistic picture of assets and liabilities.

K2 will soon be offering a free Cash Management tool for businesses to download and use.

Banks, Lenders & Investors

Keep talking to your bank manager

Post author By k2admin
Post date February 11, 2021
No Comments on Keep talking to your bank manager

At some point lockdown restrictions will be eased and businesses will be able to trade normally again.

Many will need the help and support of their banks to recover and grow.

Boards therefore need to ensure that they fully understand how their lenders view the company and actively manage their banking relationship to maximise bank support over this period.

So, even if business activity is at a low ebb at the moment, it is important to maintain communication with the bank manager and to continue to nurture the relationship.

Remember, banks see their role as secured lenders who never expect to write off loans. They are not entrepreneurs, they do not have an equity upside, so risk management of their portfolio of customers is key.

Take a look at our Board Briefings on banking issues and our Partner Mark Blaney’s book on Amazon. Take a look and get in touch if we can help.

Banks, Lenders & Investors

Boards need investors who are willing to be patient and invest for the longer term

Post author By k2admin
Post date December 15, 2020
No Comments on Boards need investors who are willing to be patient and invest for the longer term

There are lessons for all businesses in this week’s collapse of Arcadia, albeit High Street Retail has had its own specific problems for many years in the shift in consumer habits to online retail spending.

All businesses need to be agile, aware of changes to their systems and processes not least from the growth in AI and technology.

They need boards with a wide range of expertise but equally importantly, they need investors who are willing to be patient and invest for the longer term.

What they do not need are owners/investors whose sole focus is to extract maximum profit as quickly as possible while taking little or no interest in the business’ development.

If you want investors who are willing to be engaged, to contribute both money and expertise for the longer term, why not contact K2.

Banks, Lenders & Investors Rescue, Restructuring & Recovery

Welcome relief for manufacturers uncertain about investing in new plant and machinery

Post author By k2admin
Post date November 23, 2020
No Comments on Welcome relief for manufacturers uncertain about investing in new plant and machinery

A welcome relief for manufacturers uncertain about investing in new plant and machinery.

The Chancellor has confirmed the temporary £1m tax relief (up from £200k) on investments in plant and machinery has been extended by a year to January 2022.

Recent announcements about restrictions continuing at the same time as those about vaccines give us hope but make it difficult to plan. While the timeline for resuming normality is unclear, what is clear is that business will continue. For this reason plans need to be made; the only question is when they should be implemented.

Such plans might include financial restructuring but should look to the future. No business can stand still, despite the current uncertainty.

Is it better to take a chance on less than 100% certainty of an outcome than to wait for certainty? Traditional research and scenario modelling is useful heuristics can help. Our Board Briefing “Decision-Making in Times of Market and Economic Uncertainty” on the topic might be useful.

Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

The pros and cons of an infrastructure boost post pandemic

Post author By a.withers
Post date July 14, 2020
No Comments on The pros and cons of an infrastructure boost post pandemic

The UK Prime Minister has signalled a massive infrastructure boost to help the country’s economy to recover post pandemic.
The details and plans for allocation of money are likely to be fleshed out in the autumn but in a speech at the end of last month he indicated that more than £5 billion would be spent on infrastructure projects, many of them in northern and central England as part of his pledge to tackle the imbalance between London and the South and the more deprived regions.
The projects will include spending on hospitals, roads, railways and schools, including what are called “shovel-ready” projects to help businesses and individuals to recover and address the expected mass unemployment.
Business directors should be planning now to take advantage of the proposals, especially those in the construction and tech sectors that are likely to be recipients of the government money.
I know of at least one company, supplying a unique range of thermally efficient, environmentally-friendly products to house builders, which is already well-placed to grow post-Coronavirus to supply its Passivhaus compliant insulated foundation and walling systems.
The government initiative does however highlight some issues that are associated with ambitious plans that are announced without thinking them through.
In his speech, the Prime Minister promised to simplify the planning system and regulations to speed up the process.
Unless some thought and care is put into how the infrastructure boost is carried out there is a risk that the initiative will undo what little progress has been made to reaching promised environmental targets.
For example, while improving the road infrastructure is needed in some parts of the country, it is likely to increase the numbers of vehicles on the roads and in turn will contribute to an increase in CO2 emissions and global warming.
In fairness, the PM did also promise to “build back greener and build a more beautiful Britain” with a commitment to plant approximately 75,000 acres of trees every year by 2025. He does like his promises.
It may also be the case that ambitious infrastructure plans fail to meet the objectives of creating a large numbers of jobs. It is likely that businesses will be looking to find ways of reducing their dependence on labour investing in and more automation and technology-driven ways of working.
These are points highlighted by the economist Joseph Stiglitz who argues that there are infrastructure spending risks but also acknowledges that “well-directed public spending, particularly investments in the green transition, can be timely, labour-intensive (helping to resolve the problem of soaring unemployment) and highly stimulative”.
It is clear, however, that directors will need to find innovative ways of delivering the proposed infrastructure while at the same time also promoting their “green” credentials.
#infrastructureboost #economicrecovery #construction #techinnovation

Tags Business Recovery, construction, economic recovery, infrastructure boost, tech innovation

Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

Is commercial property investment no longer a safe haven?

Post author By a.withers
Post date July 9, 2020
No Comments on Is commercial property investment no longer a safe haven?

Commercial property pre-pandemic was considered one of the more secure options for money by investors, particularly by pension fund managers.
But the consequences of changing consumer behaviour, the aftermath of the pandemic lockdown and the retail High Street revolution would suggest a pause for thought and perhaps a rethink.
While the most obvious sector of business related property to be in trouble is retail it may prove not to be the only one.
Retail has been hit by a significant move to online shopping that has been building for several years, but it is also beset by what has been called an archaic rental collection system, whereby rents are payable quarterly.
The most recent Quarter Day was on 24th June (Midsummer Day) and it has been estimated that in the region of just 14% of retailers were paid their rent that day.
It was no surprise, therefore that Intu, owner of some of the UK’s biggest shopping centres, such as Lakeside and Manchester’s Trafford Centre called in the administrators the day after the Quarter Day.
Intu had been struggling even before the lockdown as a result of a list of store closures announced throughout the year so far, including well known names such as Warehouse, Oasis, Monsoon, Quiz, Pret A Manger and others. It has been estimated that in excess of 50,000 jobs have been lost in the sector so far.
The lifting of lockdown in retail is not likely to help to restore the High Street’s fortunes given the restrictions and limitations shops have had to impose to ensure customers are safe from infection.
But commercial property is not only about retail.
Lockdown meant that many businesses had to close their offices and again, they have only been able to re-open amid considerably changed circumstances for safety reasons.
Not only this, but many previously office-based businesses have discovered that their employees can work efficiently and often more productively from home and have therefore they have been reviewing their business models to enable employees to carry on working remotely.
Where they have a need for some employees to be in the office at least some of the time, they have introduced rigorous sanitisation measures, abandoned such practices as hot desking, installed safety screens at more widely-spaced desks and introduced flexible working so that employees no longer have to arrive or leave at the same time. Much of this is aimed at helping staff avoid travelling on crowded public transport but it is also a recognition that flexibility is benefitting both employers and employees.
The trust issue assumed by management has also largely been allayed; indeed staff have tended to work harder at home than they did in the office with few companies experiencing any loss in productivity. I would argue that requiring staff to work in the office was never a trust issue but more one related to the egos, status and security of managers who need the reassurance of having staff on hand; nothing to do with employees’ ability to work.
Inevitably, the successful experiment will mean that many businesses no longer require such large commercial premises and will terminate leases as soon as possible to downsize the space needed.
Indeed I know of two large professional firms who were about to move into larger offices in the City when the lockdown hit, fortunately for them they hadn’t signed the lease and have since decided then no longer need larger premises since everyone has worked perfectly well from home.
Furthermore less space will be needed as the recovery to pre-lockdown levels is looking unlikely.
Earlier this year McKinsey produced a paper full of advice for private equity and investors in commercial property about the radical changes they would need to consider for the future.
“Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. Some players will feel an even greater sense of urgency than before to digitize and provide a better—and more distinctive—tenant and customer experience.”
And this was just the start!
It went on to suggest that commercial property owners, especially in B2B environments, will have to change their behaviour and “engage directly with tenants. They should follow up quickly on the actions they have discussed with tenants. Not only are such changes the right thing to do—they’re also good business: tenants and users of space will remember the effort, and the trust built throughout the crisis will go a long way toward protecting relationships and value.”
However, the report does suggest there will be some commercial property niches that could benefit from the pandemic upheaval, such as commercial storage, and in time there may be others.
There is no doubt that the nature of the commercial property market is changing, but it is perhaps premature to predict its demise.
#commercialproperty #safeinvestmnent #propertymanagement #commerciallease

Tags business stability, Commercial Property, safe investment

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

As businesses resume operations it’s a good time to take stock with a strategic review

Post author By a.withers
Post date July 2, 2020
No Comments on As businesses resume operations it’s a good time to take stock with a strategic review

I would normally be recommending a strategic review of your business at this time of year, when activity slows down for the holiday season.
This year, of course, things are very different because of the pandemic lockdown but as you resume business activity my advice remains the same because a strategic review will help you to identify the resources, costs, opportunities and capabilities that will help your business move forward.
It may be that carrying out a review will help you identify new products or directions in which you can take your business as in a changed economic landscape innovation is likely to be a key to future success.
A business needs to be sustainable and profitable so firstly you need to identify the resources that are already available to you and these can be divided into physical resources, human resources, intellectual resources and financial resources.
To use the example of a manufacturing business, physical resources would include equipment and inventory and manufacturing plant, but also the premises, if the business owns them. However, over time for all their longevity such assets as manufacturing plant can become obsolete or inefficient and it is important to plan for when their lifespan will run out and for updating them perhaps with automation to improve efficiency.
Human resources will include existing employees and their skills, perhaps suppliers with whom you have a long-standing relationship, the board of directors and shareholders if any. Do you have the right skills and capabilities in the organisation to help it move forward, perhaps even in a new direction?
Intellectual resources include any processes or products that are already protected by patents, anything emerging from research and development or perhaps potential demand for a new but related product identified via marketing activities or customer research. The talent within your business could also be potentially an intellectual resource.
If you have identified a new product or direction for the business it is important to establish as far as possible how much it is likely to cost and where you may need to invest to turn it into a reality so current costs are an essential element in the equation.
If reflections during lockdown or insights following a strategic review give you ideas for a new direction you will need to know your business’ financial position to fund working capital and afford any investment so forecasting your cash flow is imperative as your reserves may be have been depleted by the lockdown and you may need further finance.
Doing your homework now while business activity is still quiet could make all the difference to a successful business development.

Tags Business Assets, Business Development, business innovation, strategic review

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

Directors should be mindful of future investment and changing values post pandemic

Post author By a.withers
Post date June 30, 2020
No Comments on Directors should be mindful of future investment and changing values post pandemic

Businesses planning their post-pandemic strategy are likely to be seeking future investment to shore up their balance sheets but directors will need to be mindful of the changing values of stakeholders and in particular those of their customers who in turn are influencing investors.
Before the immense disruption caused globally by the onset of the pandemic, climate change, global warming and the need for a more sustainable form of economics were a major preoccupation.
That preoccupation has not gone away.
While physical attendance at a second summit on ethical finance by international delegates from Government officials, financial institutions, consumer goods corporations, supply chain intermediaries and conservation organisations planned for Edinburgh this month has had to be cancelled, it has now been replaced by a virtual summit.
And this month, the UK’s Investors Association published a paper on the future of investment in which it, too, identified the importance going forward of ethical investment highlighting:
…“Increasing importance of sustainable investment. There is growing customer emphasis on the material impact of sustainability issues on financial returns, notably among institutional clients, as well as a more prominent focus on setting non-financial objectives (for example, to invest in companies and projects that have specific social or environmental benefit).”.
The focus and emphasis among investors is very much on CSR (corporate social responsibility), or its replacement ESG (environmental, social and governance) which is becoming the criteria for oversight of behaviour and values and holding companies to account.
Changing consumer values have been highlighted by others, including the retail “guru” Mary Portas, who has been promoting what she calls the “kindness economy” where, she argues, that shoppers may now be more alert to how businesses treat them, their workers and the planet.
Former BoE (Bank of England) governor Mark Carney also referred to this growing awareness in an article in the Economist last April, where he said that “fundamentally, the traditional drivers of value have been shaken, new ones will gain prominence” and where “public values help shape private value”.
These are issues that company directors will need to be mindful of when formulating their post-pandemic business plans, especially if the plans involve securing future investment.
Returning to pre-pandemic “normal” is not likely to be enough for business survival as the desire among both investors and consumers is for more ethical values and this has not been eroded by the pandemic.

Tags Business Development, business survival, changing values, future investment

Banks, Lenders & Investors Cash Flow & Forecasting Finance General Turnaround

What lessons can be learned from the 1930s New Deal for post pandemic recovery?

Post author By a.withers
Post date June 25, 2020
No Comments on What lessons can be learned from the 1930s New Deal for post pandemic recovery?

The New Deal was a series of measures introduced by President Franklin D Roosevelt to help the US economy recover from the Wall Street Crash and subsequent Great Depression.
It introduced a string of measures to better protect workers from ill-treatment and the consequences of unemployment and to better regulate banks and financial institutions.
As noted in the Encyclopaedia Britannica “Opposed to the traditional American political philosophy of laissez-faire, the New Deal generally embraced the concept of a government-regulated economy aimed at achieving a balance between conflicting economic interests”.
Perhaps one of the best-known Acts was the Glass–Steagall Act of 1933, which separated commercial from investment banking.
But the New Deal measures were also designed to stimulate and revive economic activity in agriculture and business, founded on the economic theory, as propounded by the UK economist John Maynard Keynes, that massive Government spending should be used to promote recovery and that spending cutbacks only hurt the economy.
Over the 20^th Century the economic theory pendulum has swing back and forth between government regulation and a market driven laissez-faire economy with the later particularly being adopted by Margaret Thatcher.
The economic response to the Coronavirus pandemic and its consequences have opened the taps to flood cash into the market in a way that even Keynes would be impressed. Chancellor Rishi Sunak’s initiatives to protect businesses, employees and other vulnerable groups are similar to the measures introduced in the early days of the New Deal.
But as lockdown measures are eased what other measures might the Chancellor adopt to stimulate the economy?
Similar to that adopted in the 1930s, the Government is considering a spending spree on what are called “shovel-ready” projects, particularly the construction of infrastructure (roads, railways, internet, schools, hospitals and other projects) that will get some people back to work quickly.
Other ideas used then and being considered now are how to get consumers to resume spending, although this should be more than just re-opening retail, leisure and hospitality businesses.
With so many people losing their jobs or worried about their economic future, there is a real concern that consumers won’t spend. Perhaps despite other short-term initiatives that were not used in the 1930s such as a reduction in VAT (Value Added Tax) on consumer products, a reduction in NI (National Insurance) contributions for employers and employees, and training people for the future.
For businesses, particularly, some reduction in Business Rates, or even a revamp which has long been called for, and more flexible repayment of the Coronavirus loans (CBILS) may help but the landscape has changed and it would appear unlikely that we shall return to a pre-Coronavirus level of business. None the least due to the number of redundancies that are coming, and perhaps just as bad, the likely prospect that the purchasing power of fiat currencies will reduce significantly despite any artificial manipulation of inflation data.
While it is often said that a recession can be the best time to start a new business, as companies ranging from General Motors, Burger King, CNN, Uber and Airbnb did, it is arguable that the post-pandemic economic damage will be so severe that more even more radical New Deal-type of measures will be needed.

Tags Business Recovery, New Deal, recession

Banks, Lenders & Investors Business Development & Marketing Finance General

Is it time to stop propping up traditional so-called UK Key Industries?

Post author By a.withers
Post date June 11, 2020
No Comments on Is it time to stop propping up traditional so-called UK Key Industries?

The main UK Key Industries are often still considered to be aviation, aerospace, steel and car production.
As a result of the Coronavirus pandemic and subsequent lockdown the UK Government is working on a plan, called Project Birch, to provide short term bail-outs to those companies “considered strategically important” to the national economy.
However, how to define strategically important? Is it in terms of their contribution to UK GDP (Gross Domestic Product), or to the number of jobs they account for, or to their ability to be viable and profitable businesses that can operate in more normal times without state aid?
It would be reasonable for a Government to consider a business to be strategically important in terms of employment during a crisis, such as now, especially given that some of the above-mentioned Key Industries are in parts of the UK where there is traditionally high unemployment with few alternative job sources, especially when whole communities are dependent on a major manufacturer.
This would apply to the car industry in the North East and to the Steel Industry in South Wales.
However, given that many are foreign-owned, there is little certainty that their owners will invest in them for the future benefit of UK, and often their commitment to keeping them open is in doubt, as previous negotiations for Government help have already demonstrated. It is therefore questionable whether they should be regarded as UK Key Industries in the medium and longer term.
According to the ONS (Office of National Statistics) the UK Key Industries today are in the services sector, including banking and finance, steel, transport equipment, oil and gas, and tourism: “the services sector is the largest sector in the U.K., accounting for more than three-quarters of the GDP”.
So, as former Treasury minister and architect of the Northern Powerhouse project Jim O’Neill has warned, any short-term bail-out of the UK Key industries identified in Project Birch as strategically important must be linked to strict conditions: “If the lion’s share of the equity is simply going to preserve jobs at any cost, that’ll ultimately just add to our weak productivity problem,” he said, in an article in CityAM.
It is a point echoed in an article in the Financial Times about the UK’s “age-old” problem of identifying winners and losers. In my view there are still far too many zombie and borderline insolvent businesses in the UK; most of them have been propped up by lenders not wanting to write off their debt, not because they will contribute to the future of UK PLC.
My blog on Tuesday focused on the opportunities for business innovation that are likely to come post-Coronavirus as a result of changed priorities for consumers and investors towards a greener and more sustainable economy rather than a largely consumer-oriented one.
Perhaps in orchestrating an economic recovery it would be wiser to focus on stimulating and investing in new and innovative businesses and in re-educating and training the workforce for the future and not leaving them untrained and propping up the past.
Identifying new potential UK Key industries, such as pharmaceuticals, innovative technology and the manufacture of sustainable new products is imperative for our future prosperity instead of propping up ailing industries simply because they employ large numbers of voters.

Tags business innovation, innovation support, UK key industries

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

A complex jigsaw puzzle for directors in planning a post-coronavirus retail strategy

Post author By a.withers
Post date June 4, 2020
No Comments on A complex jigsaw puzzle for directors in planning a post-coronavirus retail strategy

As more restrictions are relaxed, allowing increasing numbers of retailers to re-open, directors have many issues to consider when planning their retail strategy for recovery.
Given that High Street retail was already in serious trouble, directors need to address a number of complex questions to assess their chances of survival and develop their retail strategy for reopening, short-term survival and growth.
This will include understanding and meeting the interests of many stakeholders including customers, staff, suppliers, landlords, investors and regulators.
Reducing overheads is likely to be key, given the need to include social distancing measures that will inevitably limit numbers in-store at any one time, thus reducing the number of transactions that can be achieved in any working day. This raises the question of whether or not the business is viable as it needs sufficient revenue to cover the cost of staffing, utilities, rent and related premises expenses while also generating profits.
Customer behaviour and changing attitudes are also likely to be a key factor that will determine retail strategy.
Even before the lockdown there was clear evidence that shopping online was increasing dramatically where those retailers that had introduced online with delivery or click and collect were generally surviving rather better than those that had not. Research by the accountancy and business advisory firm BDO has indicated that online sales rocketed in April by 109.6% compared to last year, although this did not factor in the loss of high street sales caused by the lockdown.
However, there has been much talk of a “new normal” post-Coronavirus and Mary Portas, the retail guru, has highlighted this in her suggestion that post lockdown will bring a “new era of shopping and living” which she calls the kindness economy in which shoppers will search for brands that reflect their values. Environmental and ethical concerns were already becoming increasingly important before the coronavirus pandemic and they will almost certainly continue to be a growing factor.
In addition, consumers will have less disposable income given the likely job losses although it is not yet clear how disposable income will be deployed if restrictions remain for mass events, leisure, travel and holidays. Certainly, being confined to home has encouraged a shift in consumption and again it is not clear if these will be permanent such as surviving without spending on disposable fashion, for example.
Accessibility to high streets may also change now that people are being encouraged to walk and cycle more and drive or use public transport less. Will this impact on shopping habits with shoppers making fewer, and more considered, purchases, not least because they will have to be carried home if not bought online?
All these considerations will weigh heavily on directors planning their future retail strategy and will likely mean convincing shareholders, lenders and suppliers to think long-term for a return on their investment.
The question is, can directors fashion all these competing interests into a retail strategy to ensure survival and growth in the future?

Tags business planning, business survival, retail strategy

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

The Phases for dealing with a pandemic involving Zoonotic diseases

Post author By a.withers
Post date May 21, 2020
No Comments on The Phases for dealing with a pandemic involving Zoonotic diseases

In 1999 the WHO (World Health Organisation) devised a blueprint based on Phases for dealing with a pandemic, subsequently updated in 2005.
It set out six Phases, to provide a global framework to aid countries to prepare for a pandemic and plan their response.
The first three Phases cover animal transmission escalating to domesticated animals and eventually germs spreading to humans defined as a Zoonotic disease. These initial phases also deal with the preparation, capacity development and response planning activities, while the last three Phases deal with the response and mitigation efforts when a disease transmits from human to human.
Phase 4 deals with verified human-to-human transmission of an animal or human-animal virus and its ability to cause “community-level outbreaks”. Phase 5 deals with the human-to-human spread of the virus into at least two countries in one WHO region and the sixth Phase is the Pandemic Phase where virus transmits from human-to-human in at least one other country outside the region identified in Phase 5.
These are relatively straightforward definitions, but how different governments, businesses and people react to them is another matter altogether.
As has been clear during the current Coronavirus Pandemic state-level reactions for dealing with a pandemic have varied widely both in the state measures adopted and how stringently they have been implemented, with countries like South Korea at one extreme imposing a strict lockdown and restriction on movement from fairly early on when there were just a few cases, to Sweden, which has imposed relatively few restrictions and no lockdown.
However, the disparity in various state reactions to dealing with a pandemic has arguably informed the way both citizens and businesses have reacted. In the UK much of the initial focus was on the economic impact with the Chancellor introducing a wide range of financial support measures for both businesses and employees. However, some argue that the initial infection control was not as stringent as it might have been.
Scientists at Harvard university have mapped the behaviour of people in response to a Pandemic and also identified similar Phases of reaction to those set out by the WHO.
Initially, their research found that in the case of a severe Pandemic, the initial reaction by people when they become aware of a risk is to overreact. They become hypervigilant, pause “normal” behaviour, and “take precautions that may be excessive, may be inappropriate, and are certainly premature” – such as panic-buying toilet roll and other supplies as happened in the early stages in the UK. This, they say, is not the same as panic.
The scientists argue that this is entirely appropriate early in such a crisis because it means people then become able to cope with the crisis.
However, the alternative reaction is denial or even anger and in the early Phases inaction as a response is counter-productive since people don’t take precautions. Examples include those, such as in Michigan, USA, who protested against lockdown measures.
Michigan epidemiologist Sandro Gales has identified five Stages of reaction to a major disaster: starting with self-preservation, moving through group preservation to blame setting, justice seeking and finally “renormalizing” which can mean adaptation to the threat.
These are similar to the five Stages of grief: denial, anger, bargaining, depression and acceptance as identified by Elisabeth Kübler-Ross who also found that a lot of people get stuck in one phase or another and some take a long time to reach acceptance of the situation.
How well a country copes with a crisis, therefore, depends on how its leaders manage both individual perceptions as well as vested interests such as those of business. This is improved by radical transparency when they don’t know the answers but their honesty about what they do and don’t know and what they are doing will help reassure everyone that they are doing their best.
The fact is they will make mistakes but so long as they make the best possible decisions based on expert advice and the information available then they will convey confidence that they will eventually find a way through the crisis. There is no doubt that many with the benefit of hindsight will seek to hold them to account but there are lots of armchair warriors and very few leaders who stand up and take difficult decisions.
Understanding and managing the different Phases of a Pandemic and the different stages of reaction to a crisis are particularly important as they inform what messages to convey, where people may misunderstand messages such as when restrictions, as now, are being eased while at the same time there is a need for maintain a level of vigilance.
Perhaps we shall know the Pandemic is over in UK when we see the House of Commons packed with MPs given that so many are classified as vulnerable being over 70.

Tags business planning, business resi;ience, crisis management

Banks, Lenders & Investors Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery

Is it time to introduce more resilient business systems for post-lockdown?

Post author By a.withers
Post date May 7, 2020
No Comments on Is it time to introduce more resilient business systems for post-lockdown?

Just in time (JIT) business systems of supply for everything from supermarket stocks to manufacturing components and raw materials have been the dominant model for some years.
While it offers huge benefits, including less storage space needed and less capital tied up in stocks, the disruption caused by measures to contain the coronavirus pandemic has revealed some major flaws in the model.
When such an integrated global supply chain breaks down as has happened recently the impact on business is considerable where shortages of stock have arisen due to road, sea and air freight grinding to a near-halt.
Indeed, JIT relies on many different components arriving on time often from myriad sources such that any one item can bring all production to a halt. The current situation has magnified the vulnerability since all the different supply chains will need to be fixed before production can resume..
Systems resilience describes a system’s ability to operate during a major disruption or crisis, with minimal impact on critical business and operational processes and the pandemic has revealed that in many cases it has been sadly lacking.
While many businesses have ceased to operate as a result of the pandemic, thus reducing demand for some categories of stock, there will come a time when those that survive will need to resume, and where different business systems may need to be developed to make the production more resilient and perhaps protect it from future similar shocks.
So now is the perfect opportunity for businesses to consider how to make their business systems and models less vulnerable in the future.
Firstly, this will take a change of mindset away from profit at all costs towards sustainable profits that factor in risks and resilience rather than simply focusing on cost reduction. The profit at all costs mindset has many short comings, not just vulnerability but safety also and was a causal factor behind the Piper Alpha Disaster that led to 167 oil rig workers dying.
It is also interesting that the US investor Warren Buffet, of Berkshire Hathaway, has sold his firm’s entire holdings in the four major US airlines in the belief that the post-pandemic world is likely to be very different, saying “We will not fund a company … where we think that it is going to chew up money in the future.”
Buffet is widely respected for his investment skill over the decades, so it is worth paying heed to his decisions.
As part of the longer-term thinking about business systems, companies will also need to improve their balance sheets to help withstand future shocks like the banks have been forced to do since the Global Financial Crisis of over ten years ago.
However, business should also, in my view, consider the benefits to be gained from nurturing relationships with reserve suppliers as well as perhaps maintaining larger reserve stocks of those materials or parts they need to sustain productivity during interruptions to supplies.
It may be that this will mean larger onshore storage facilities than they have been used to, but while this might mean lower profits and lower dividends for investors in the shorter term, it will provide greater security for the business and its owners in the medium and longer term.
The so-called “new normal” is likely to be very different for businesses and economies as the restrictions on movement are gradually lifted and it is likely to be a considerable time before we get there, but arguably this is an ideal time for businesses to rethink their business systems and prepare for a more sustainable future on many levels.

Tags Business Recovery, business resilience, business systems

Accounting & Bookkeeping Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Has the Coronavirus lockdown exposed the weaknesses of many business models?

Post author By a.withers
Post date May 5, 2020
No Comments on Has the Coronavirus lockdown exposed the weaknesses of many business models?

Robust business models should be based on a clear proposition with a plan for profitable activity.
Each model is essentially a road map of how money will flow from activity.
Business models are a financial expression of the company’s business plan in a way that summarises the strategy, funding, organisation and processes used to achieve objectives.
Given that unforeseen roadblocks and successes will occur, business models should be reviewed regularly and adapted depending on new circumstances and new information.
Tools for refining the model are also useful, such as a SWOT analysis to identify Strengths, and Opportunities to be exploited and Threats and Weaknesses to be avoided.
While arguably, few businesses and especially SMEs, will have had plans to cope with the coronavirus pandemic, it has affected most businesses in ways that were not foreseen. The lockdown has also exposed how little resilience they may have built into their business models to protect from such a crisis.
To a large extent, the situation has exposed a lack of financial resilience but it has also highlighted a lack of character among leaders. The behaviour of leaders in particular will be remembered by those who deal with them, whether employees or other stakeholders.
It is alarming how many directors have been paralysed by the situation and not taken calls or failed to answer with awkward questions, often hiding from the fact that their problems will not go away.
While leaders may not know the answers, they should be visible, they should be looking for the answers and telling everyone what they are doing to find them.
The government is a good example of leaders trying to communicate, I leave it you to decide whether or not their messages are believable or they are doing a good job of leading in a crisis.
James Ball, writing in the Guardian, provides an excellent illustration of two examples of flawed business models, Uber and Deliveroo. At a time when it might be expected that their services would be more in demand than ever as people are required to stay at home and preserve social distancing, he points out that they are not structured to make a profit, but instead rely heavily on growing rapidly, not growing sustainably.
“This is the entire venture capital model,” he says. “….This is a whole business model based on optimism. Without that optimism, and the accompanying free-flowing money to power through astronomical losses, the entire system breaks down.” Indeed, this reinforces my view that the Silicon Valley approach to venture capital has parallels with a giant Ponzi scheme by using new investors’ money to provide returns to early backers.
Will Hutton also looks at business models and considers how the economy might recover from the lockdown in a more sustainable way: “equity investment: the venture capital and private equity industries must transmute themselves from their default role as predators and asset-sweaters to long-term, patient investors”.
I believe the short-term, profit-driven motives of early investors looking for a return before their investment makes a profit is a flaw in most companies’ business models and has contributed to the weaknesses that have been exposed by the measures that have been needed to contain the pandemic.
Some might say ‘buyer beware’ in a world where animal spirits and greed drive behaviour but this argument exposes a lack of character among leaders who should show courage and moral fibre.
Perhaps it is time for a bit more moderation and longer-term thinking in the construction of business models for the future.

Tags business models, investors, short termism

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

The latest insolvency statistics for the first quarter of 2020 don’t tell the whole story

Post author By a.withers
Post date May 1, 2020
No Comments on The latest insolvency statistics for the first quarter of 2020 don’t tell the whole story

Astonishingly given the news coverage of a financial fallout due to the Coronavirus pandemic, the latest insolvency statistics for Q1 January to March 2020, show a decrease both when compared to the previous quarter and to the same quarter in 2019.
The figures, published by the Insolvency Service yesterday, showed a total of 3,883 company insolvencies with the majority again being in CVLs (Company Voluntary Liquidations).
This was a decrease of 10% compared with the last quarter of 2019, October to December, and of 6% when compared to January to March quarter of 2019.
Construction continued to have the highest number of insolvencies, followed by the wholesale and retail trade and accommodation and food services.
While these insolvency statistics cover the period before the lockdown due to the Coronavirus pandemic was imposed a drop in insolvencies is still surprising given that economies in the UK and EU had been slowing in previous months.
There is more clarity, however, from the latest Begbies Traynor Red Flag alert figures published on April 17.
They reported their highest-ever numbers of businesses in significant distress at 509,000 with the impact of the lockdown showing 15,000 more businesses in significant distress (3%) compared with Q4 2019. The vast majority of these, they found, were SMEs with under 250 employees.
There is even more concern in the Red Flag figures for businesses in critical distress, which Begbies Traynor regards as a precursor to falling into insolvency. They reported a 10% increase in the last quarter alone, although, as they note, “creditors have been held back from taking court action due to the lockdown”.
The most notable increases, they report, are a 37% increase in bars and restaurants, 21% increase in real estate and property, 11% increase in construction and 8% increase in both general retail and manufacturing.
All this is despite the various financial support measures of grants and loans announced by the Chancellor who has sought to help businesses survive the pandemic.
Having said that, loans need to be repaid and many are concerned about the future prospects for businesses and for some industries that may take some time before they return to normal, not least the Banks who understandably might be reluctant to lend to those who are unlikely to repay their loan. This might explain the numbers of businesses that have been turned down.
In the middle of an unprecedented situation like the current pandemic it is difficult to draw conclusions from trends or make meaningful assumptions about the future number of insolvencies but there is no doubt they will rise significantly.
Historically the rise has been an indicator of the country coming out of a recession although most recessions have been ‘V’ shaped where some are predicting a ‘U’ or even an ‘L’.
Clearly much will depend on for how long the lockdown continues and we should prepare for many companies, particularly those relying on travel, events, hospitality and an already-struggling High Street, to disappear altogether as Warehouse and Oasis have most recently done.
Much will also depend on consumer confidence and spending power – and how many people have lost their jobs but clearly economic and business recovery will be prolonged and painful.

Tags economic recovery, Insolvency Statistics, Struggling Businesses

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Time for a rethink? The global supply chain and short-term thinking

Post author By a.withers
Post date April 28, 2020
No Comments on Time for a rethink? The global supply chain and short-term thinking

A time of crisis, such as the current Coronavirus pandemic, exposes the weaknesses of inter-dependency and systems and in this case, the global supply chain.
There is perhaps also no better time to review things and perhaps change from the short term thinking that seems to have dominated economics and businesses, especially in those economies like the USA and UK that rely heavily on the purchase of foreign goods.
It is clear that it will be a long time before life returns to normal and it is not yet clear what that “normal” will look like.
In the previous “normal” it was possible to rely on adequate supplies of raw materials for the production of various types of goods, such as food stocks on supermarket shelves.
But one of the first signs of the disruption to come was the rapid emptying of supermarket shelves as people panicked and bought large supplies of various items, for example toilet paper, hand sanitiser and pasta, in anticipation of the coming lockdown.
Another sign of disruption is the price of oil which has plummeted leaving tankers around the world mooring off-shore waiting for prices to rise before offloading their oil.
There has also been the saga of medical equipment such as ventilators to treat those hospitalised seriously affected by the virus and of personal protective equipment (PPE) for medical workers treating them.
Similarly, as various crops were ripening, it became clear that there might not be enough seasonal workers available to pick them, as many farmers had been relying on seasonal workers coming into the country from Eastern Europe.
All these examples provide lessons in the inter dependence of supply chains that support a “just in time” model of global business.
As Larry Elliot wrote in a Guardian opinion piece in mid-April: “The past 30 years have seen global markets – especially global financial markets – increase in both size and scope. Long and complicated supply chains have been constructed: goods moving backwards and forwards across borders in the pursuit of efficiency gains”, meaning that capital flowed in and out of countries equally quickly and there was no thought of building any capital reserves.
In an era of weak growth since the 2008 global financial crisis, he says, “What this amounts to is a world clinging on by its fingertips, even in what passes for the “good times”.
The global supply chain, just in time model effectively did away with large, local warehousing attached to manufacturing units as much as to food stores. It relies heavily on a continuous supply of materials and ingredients being delivered by a well-functioning international and national transport system.
In the UK, particularly, the manufacturing sector has been shrinking for years as the economy has pivoted to rely more heavily on the tech and financial services industries.
The reasons for the decline in manufacturing are myriad but largely down to the long-term investment needed and short-term expectations of investors of a swift return on their investment.
The lack of planning for a rainy day has also been highlighted. This observation is not just of the UK government that has failed to invest in the storage of equipment supplies but it also applies to businesses that have not built up capital reserves and consumers who do not have any savings.
In fairness, it has also brought out the best of those many businesses that have adapted to survive through agility by quickly re-designing their business models and production lines such as those who are now producing hand gel or selling goods outside their shops, restaurants or pubs.
While a short blog cannot hope to analyse all the flaws of a global supply chain model in detail, it has become clear that there are vulnerabilities both to businesses and to national economies that rely on international suppliers and the short term thinking that has driven it.
The return to ‘business as usual’ that is increasingly being demanded may not be possible given how long social distancing may have to continue. How many businesses will cease trading altogether as a result and how many people will lose their jobs will be major factors when we get round to reviewing our trading relationships.
This could therefore be a good time for businesses, economists and politicians to give some thought to creating more robust, longer-term, and perhaps more locally-based systems for the future.

Tags business models, materials spurcing, sustainable business

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency

SMEs applying for support under the Coronavirus Business Interruption Loan Scheme should read the small print

Post author By a.withers
Post date April 2, 2020
No Comments on SMEs applying for support under the Coronavirus Business Interruption Loan Scheme should read the small print

Grabbing a lifebelt when you are drowning makes sense, but when that so-called lifebelt is a business loan to survive the Coronavirus pandemic, you need to read the small print before signing on the dotted line.
The various government support schemes for SMEs may have made big headlines, not least their claims about making loans available for SMEs, but the devil is likely to be in the details.
No matter how panic-stricken you might be it is worth making sure you know exactly what you are getting into when applying for a loan under the Coronavirus Business Interruption Loan Scheme (CBILS). The difficulty many businesses are having getting through to someone at the bank is an indication of the problem, albeit it is hardly surprising given that banks have run down their SME support teams over the past twelve years.
Before even contacting a bank the first step is to take a deep breath and ensure you know exactly who to approach and what you can apply for. There are ample details about the process on the British Business Bank website here. However, the reality is that banks are likely to prioritise their own customers and among them, their long term ones.
The next step is to prepare a forecast showing how much is needed, what it will be used for and how a loan will be repaid.
Most banks have now undertaken to not pass on their usual loan application fees to customers because the Government has promised to cover the first 12 months of these and the interest payments.
However, you should be mindful of what happens after that in terms of your liabilities. According to the BBB website: “The lender has the authority to decide whether to offer you finance. If it can do so on normal commercial terms without having to make use of the scheme, it will”. This means you may be offered a loan but not under CBILS.
The Big Four banks have agreed that they will not take a personal guarantee (PG) from directors as security for lending below £250,000. However, this message hasn’t trickled down the chain in all cases such that managers are still demanding them. The other issue is that non CBILS loans may be offered in which cases the bank can request PGs and in some instances may want a charge over your home.
Despite there being 40 lenders listed as offering loans under CBILS, in practice most of them are small regional lenders who will not apply to you although they are worth checking out to see if you meet their criteria.
For years I have cautioned those seeking business finance and have advised directors to be extra careful about guarantees so make sure to read and understand what you are letting yourself in for. Indeed, I would also advocate involving your spouse in the decision if there is the slightest prospect of you losing your home. These loans are often sold by ‘nice’ banks to ‘nasty’ ones.
Surviving this dreadful situation is fraught with complexity. Decisions about staff with scope for furloughing them is one area that is complicated since contracts of employment must be honoured – there is a link for some good advice on all this from Acas.
Decisions about delaying payments to suppliers and other creditors is another huge issue, while it may be expedient, not paying liabilities as and when they fall due means that a company is insolvent.
It may be tedious, but you need to consider the possible consequences of decisions taken in the heat of the moment so you need to approach problems in a calm and rational manner and ideally you should discuss them with turnaround and insolvency professionals who have considerable experience dealing with such crisis situations.
Whatever you do, don’t just focus on the immediate benefits of decisions but consider the second and third order consequences of decisions before acting on them, despite this caution don’t delay action, most of it is common sense.
Check out https://www.onlineturnaroundguru.com/ for more tips on survival

Tags Covid 19 business loans, mall print, SME support

Banks, Lenders & Investors Cash Flow & Forecasting Finance General Insolvency

Something for everyone in the Spring budget – but will it be delivered?

Post author By a.withers
Post date March 12, 2020
No Comments on Something for everyone in the Spring budget – but will it be delivered?

Who could envy a Chancellor having to deliver a Spring budget just one month into the job and in the midst of a global pandemic?
The Spring budget came after the early morning announcement of by the BoE (Bank of England) of an interest rate cut from 0.75% to 0.25%. Was this an outgoing Governor stealing an incoming Chancellor’s thunder?
With short term measures to help businesses deal with the Covid-19 consequences and others dealing with the environment, infrastructure, business taxes and addressing regional inequality the Spring budget covered them all.
The headline was a commitment to invest in infrastructure in support of the government’s commitment to ‘level up’ the economy by focusing investment on the Midlands and North: “over the next five years, we will invest more than £600bn pounds in our future prosperity”.
Many worries of SMEs were addressed by the £30bn package of short term measures to deal with the consequences of the Covid-19 epidemic.
They included abolishing business rates altogether for a year for small retailers with a rateable value below £51,000 extended to include museums, art galleries, and theatres, caravan parks and gyms, small hotels and B&Bs, sports clubs, night clubs, club houses and guest houses.
There was also a promise that business rates as a whole would be reviewed later in the year.
Any firm that is currently eligible for the small business rates relief will also be able to claim a £3,000 cash grant.
The Government will also cover up to 80% of a coronavirus loan scheme to cover the cost of salaries and bills and will offer loans of up to £1.2m to support small and medium sized businesses.
£2bn will be allocated to cover firms employing fewer than 250 people that lose out because staff are off sick with the cost of a business having to have someone off work for up to 14 days refunded.
The benefits rules will be relaxed to enable those who currently do not qualify for sick pay, such as the self-employed and gig economy workers, to claim benefits, which will also now be paid from day one of sickness.
Fuel duty was also frozen for a further year, but tax relief on red diesel will be removed over two years albeit with an exemption for farmers, rail and fishing.
In the longer term and over the five years of the parliament, the much-anticipated £170bn spending on improving the transport infrastructure and addressing the regional imbalance was also confirmed.
This will benefit the construction industry and is no doubt part of another statement: “Today, I’m announcing the biggest ever investment in strategic roads and motorway – over £27bn of tarmac. That will pay for work on over 20 connections to ports and airports, over 100 junctions, 4,000 miles of road.”
Similarly, the Chancellor confirmed that more than 750 staff from the Treasury and other departments will move to a campus in the north of England, as well as significant investment on R & D and that at least £800m will be invested in a new blue skies research agency, modelled on ARPA in the US.
Among a host of environmental initiatives, a new tax on plastic packaging is to be introduced, as well as freezing the levy on electricity and raising it on gas from April 2022.
Given the uncertain prospects for the UK’s economy, how many of the longer-term promises will be realised is likely to depend on the Government’s ability to borrow at unprecedentedly low rates so that it remains to be seen how much of the longer-term spending will actually happen.
It also remains to be seen how difficult the processes by which SMEs can claim help for Covid-19 related losses will be and whether the promise to review business rates as a whole will materialise.
The PR spin is already in place such as RBS’s claim today that it will provide £5bn of support for SMEs when in practice the small print refers to this as an extension to existing loan and overdraft facilities.
Notwithstanding any cynicism the Chancellor’s rhetoric was optimistic claiming his budget was aimed at “Creating jobs. Cutting taxes. Keeping the cost of living low. Investing in our NHS. Investing in our public services. Investing in ideas. Backing business. Protecting our environment. Building roads. Building railways. Building colleges. Building houses. Building our Union.”

Tags business stability, SMEs, Spring Budget

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

Sector – business in UK’s North and Midlands

Post author By a.withers
Post date March 10, 2020
No Comments on Sector – business in UK’s North and Midlands

The UK’s North and Midlands were once the powerhouse for the country’s economy, with its manufacturing and engineering industries driving the Industrial Revolution in the late 19^th Century.
Cities such as Leeds, Bradford, Manchester, Sheffield and Birmingham were the industrial heartland of UK when national economies depended heavily on what they could make and sell, from textiles to steel and heavy engineering machinery.
But as industry in UK declined, the UK economy shifted its focus to services and in particular to the professional and financial services with a lot manufacturing being transferred to countries such as India and China, where production costs were much lower. This was also associated with a shift in the UK economic centre of gravity from the Midlands and the North to London leaving much of the country behind.
Vestiges of industry have survived in places like Sunderland, where the Japanese car manufacture Nissan has thrived and recently increased its commitment by investing more than £50m in its plant that builds the Qashqai model.
According to a “State of the North” research by the IPPR (Institute for Public Policy Research) and reported in the Yorkshire Post in November 2019, “only countries like Romania and South Korea are more divided” than the UK.
It found that “in Kensington and Chelsea and Hammersmith and Fulham, disposable income per person is £48,000 higher than in Blackburn with Darwen, Nottingham and Leicester”.
In December 2019 various reports by the Centre for Cities highlighted the issues. According to the Financial Times it had found that the economic divide between London and the rest of the UK widened last year.
The FT also quoted ONS (Office for National Statistics) figures that showed that “The UK capital recorded a 1.1 per cent annual rise in output per person to £54,700 in 2018, increasing the per capita gap with the poorest region — the North East — where growth was only 0.4 per cent to £23,600 per head”.
The Centre for Cities research analyses business and employment opportunities across the UK, finding that many northern cities are underperforming, hampered by a need for growth and by being at different economic stages in terms of availability of skilled workers and of infrastructure.
But there have been some signs of hope for the UK’s North and Midlands amid the gloom with the Centre for Entrepreneurs think-tank reporting that Birmingham is now the UK’s start-up capital outside London. The British Business Bank has also revealed that entrepreneurs in the north of England received more loans than those in London.
Business Live recently reported that figures from UK Powerhouse have shown that Stoke-on Trent has the fastest employment growth in the UK.
During the recent General Election much was made of pledges to level up the economy with heavy investment promised for the UK’s North and Midlands.
Among the promises made by the Government is a pledge to get on with the proposed HS2 railway to connect northern cities like Birmingham, Manchester and Leeds to London. It argues in support of this plan that “The Midlands already has the highest concentration of businesses outside London, including international firms such as Jaguar Land Rover, MG Motors, Deutsche Bank, JCB and the 150 year old, West Midlands-founded FTSE 250 engineering firm IMI”.
It has also promised “massive investment” in a new institute of technology to be based in Leeds, and to be modelled on MIT in the US (Massachusetts Institute of Technology) and there are suggestions that parts of the Treasury will be relocated to the North of England.
Whether these promises will be delivered remains to be seen, especially given the more immediate and pressing problems of the NHS demands due to the worldwide pandemic of Covid-19 now playing havoc with the global supply chain and countries’ economies.
Perhaps this week’s budget will provide some clues.

Tags UK business, UK economy, UK regional imbalance

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

Running out of cash – crisis management, the first step in dealing with a cash crisis

Post author By a.withers
Post date February 20, 2020
No Comments on Running out of cash – crisis management, the first step in dealing with a cash crisis

Crisis management when a company is in financial difficulties is about quelling the understandable panic and taking a long, hard look at managing the business’ cash flow and the potential for action that makes the business viable.
Running out of cash is the cause of most business failures where the cash flow test of insolvency applies such that a company is insolvent if it is unable to meet its liabilities as and when they fall due. This doesn’t mean the business should be closed down but it does mean the directors should take clear steps to deal with the financial situation.
The first thing directors need to appreciate is that their primary consideration is to protect the interests of creditors rather than that of shareholders. This is where an insolvency or turnaround professional as an outsider can help by bringing an objective assessment of the personal risk when making decisions and the prospects that turnaround initiatives can be taken to restore the business to solvency.
Initial action by experienced turnaround professionals will focus on the short term cash flow while at the same time they will consider the medium and long term prospects for the business and whether the business model works or needs to be changed. This may be contrary to insolvency professionals who may be interested in justifying their appointment under a formal insolvency procedure.
Any review by professionals will consider how financial situation developed where it often the case that over time creditors have been stretched. Indeed, there are many reasons for the shortage of cash that often leads to a delay in paying suppliers whether this is due to a decline in sales, poor debt collection, bad debts, inadequate credit control, over trading, over stocking, funding investments and growth that doesn’t translate into sales or indeed myriad other reasons.
Guidance from the ICAEW (The Institute of Chartered Accountants in England and Wales) is that at this stage:
Getting cost controls properly in place, insisting all purchases (however small) are signed off centrally by the managing director or finance director, chasing harder to collect outstanding debts, or agreeing new payment terms with creditors can have a quick impact and help ease an immediate crisis.
The most likely immediate priority in managing a liquidity crisis is reducing costs while maximising income.
So, the first step in managing cash is to construct a 13-week cash flow forecast to help identify risks and actions that can be taken to reduce them. It should include income from sales and other receipts and outgoings, both to ongoing obligations such as rent wages and finance and to creditors.
The business also needs to control cash on a daily basis, with payments made on a priority basis with purchases approved by an authorised person who is aware of their impact on cash flow.
This will avoid the risk of returned cheques. It is also advisable to talk to the bank and keep it aware of what is being done to keep things under control.
This is the first step in crisis management when a company is having financial difficulties, but thereafter a restructuring adviser can be invaluable in taking a long, hard look at the business operations, its processes and its business plan to identify areas where performance is weak or unprofitable and whether and how the company can be returned to profitability if these elements are removed.
Getting external and objective help is likely to be necessary and my guide to running a business in financial difficulties is a useful reference.

Tags Cash flow, crisis management, Insolvency, restructure

Banks, Lenders & Investors Business Development & Marketing Finance HM Revenue & Customs, VAT & PAYE Turnaround

Will SMEs get more help from the Government?

Post author By a.withers
Post date February 18, 2020
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Business pages are always full of articles claiming that SMEs need more help from the Government.
But equally, there have been a number of upbeat and positive reports that suggest the opposite is the case, so what is the truth?
According to the business lender Iwoca, lending to SMEs in deprived areas has dropped dramatically, by 8% between 2014 and 2018. Iwoca CEO Christoph Rieche has said: “It’s concerning that, in many parts of the country, major banks aren’t serving small and microbusinesses with the funding required to help them thrive. SMEs are vital for the health of the economy.”
The figures are borne out by UK Finance, which has revealed that small business loans and overdraft balances from big banks fell by almost 16% in the North West between the end of 2014 and September last year, from £9.8bn to £8.2bn, while loans and overdraft balances in London fell by only 2.3%. Wales saw a 14.2% drop, while Yorkshire and the Humber posted a 10.9% decline.
The CEO of the British Business Bank has also argued that the Government should invest “billions” more in SMEs if it wants to deliver on its promise of levelling up all parts of the UK.
Earlier this month reports in the Financial Times and the Times criticised the Prime Minister for ignoring business groups such as the CBI (Confederation of British Industry), BCC (British Chambers of Commerce) and the IoD (Institute of Directors) in a speech he gave on EU trade negotiations.
An aide (unnamed) later reportedly criticised these business bodies for failing to prepare their members for “a Canada-style free trade deal” and said they were unlikely to get Government attention unless they fulfilled their responsibility to their members.
Another issue high on the SME agenda is the Apprenticeship Levy, which is failing SMEs, according to the FSB (Federation of Small Businesses) leading to a 24% drop in apprenticeship starts since the new scheme was introduced in 2017.
However, there has been some positive news for SMEs, the Ministry of Housing, Communities and Local Government has confirmed that a £1bn of new loans is to be made available to small construction companies, under a loan guarantee scheme.
Let us hope it is not like the Enterprise Guarantee (EFG) scheme that was introduced in January 2009 to replace the Small Firms Loan Guarantee (SFLG) scheme that was introduced in 1981.
While both provided for a government guarantee to underwrite bank lending to SMEs, the SFLG scheme was a key contributor to the grown of the UK economy under Mrs Thatcher’s government through encouraging entrepreneurs. The SFLG repaid the banks as lenders to companies upon insolvency of the but was very different to the EFG that required personal guarantees from directors and only repaid the bank lenders after bankruptcy of directors as guarantors. It is no wonder that the EFG failed. We can only hope that the new breed of young advisers to Rishi Sunak, as the new chancellor read history but I am not holding my breath.
In the meantime, there are other initiatives, many aimed at the regions such as the Midlands where FSE Group has been appointed by the Midlands Engine Investment Fund to manager an estimated £40 million fund for its region’s businesses.
An example of stimulus for SMEs was that reported by Civil Service World who found that the proportion of government spending going to SMEs exceeded 25% for the first time in four years last year, as smaller firms won an extra £2bn in Whitehall contracts.
There are without doubt burning issues for SMEs that need to be addressed, such as tougher action on late payments, reform of business rates and reliable, efficient broadband in rural areas and market towns, on which there has been little Government comment so far. We might however have found a champion in Philip King, the recently appointed Interim Small Business Commissioner, who is promoting the Prompt Payment Code (promptpaymentcode.org) to focus a spotlight on the payment record of large firms.
We shouldn’t ignore the positive signs from Government following its election with a clear mandate and a sense of purpose to make things happen which in turn will rely on a strong economy.
The budget on March 11, may yet contain some real help for SMEs and at least will let us know whether the Government is aware of SMEs and their concerns.

Tags business environment, Government support, SMEs

Banks, Lenders & Investors Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery

Directors’ duties and liabilities survive insolvency – a new court ruling

Post author By a.withers
Post date February 11, 2020
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A recent High Court ruling on directors’ duties after insolvency has said that they cannot buy assets from their liquidated companies at below market value.
The ruling was made after solicitors for the company’s second liquidator who took over the case, Stephen Hunt, argued that Brian Michie as former owner and director of the construction company, System Building Services Group Ltd, had “unfairly bought a two-bedroom house from the original insolvency practitioner involved for £75,000 less than it was worth, 18 months after his company went out of business”.
The company went into administration in July 2012, and then into a creditors’ voluntary liquidation in July 2013 following which Mr Michie bought the property in Billericay, that was owned by his company, for £120,000 in 2014 from the previous liquidator Gagen Sharma.
The case revolved around whether director’s duties survived the insolvency of a company and specifically those relating to the purchase of assets post insolvency.
Directors have specific obligations where a company becomes insolvent. Under the Insolvency Act 1986 (IA 86), they must act to minimise further potential loss to creditors. Under the Insolvency Act 1986, the directors must recognise their duty to the company’s creditors, including current, future and contingent creditors.
While the case did not involve a pre-pack, where the business and assets of an insolvent company are sold by its Administrator to a new company, in this case the assets were sold by an insolvency practitioners back to the director and it has implications for such a sale since it was argued that the director knew the real value of the assets and knowingly bought them for less than what they were worth known as a ‘sale at undervalue’ which is a breach of the IA86.
Mr Hunt has been quoted as saying that: “This wasn’t a pre-pack case in the normal sense, but it was a predetermined sale of assets back to the director through a company that the insolvency practitioner assisted in forming.
“The moral case for pre-pack sales to directors has often been questioned, but this decision opens up the possibility of a clear legal difference between a third-party sale and one to the existing owners.”
I would strongly advise company directors to familiarise themselves thoroughly with their duties and liabilities.
You can download a copy of my Guide to Directors Duties here.

Tags directors duties, Insolvency

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

Key Indicator – the state of UK business activity

Post author By a.withers
Post date February 6, 2020
1 Comment on Key Indicator – the state of UK business activity

UK business activity is either in a woeful state, or slowly picking up speed following December’s general election, depending on who you are listening to.
Given the dire insolvency figures for 2019, which I covered in Tuesday’s blog, there is clearly plenty wrong in specific sectors of the economy.
The construction industry, High Street retail and the accommodation and food services were the worst-affected last year but it would be foolish to pretend that any business, from SME to large corporations had an easy time given the global economic slowdown and, more recently, figures revealing that the EU economy is near-stagnant.
Nevertheless, now that the withdrawal of the UK from the EU has passed its first hurdle and that the government has a clear mandate with a huge majority to implement its decisions for the next five years, there are signs of optimism.
The first Lloyds Bank Commercial Banking Business Barometer in 2020 showed a 13-point increase in business confidence, taking it up to 23% in January, the highest it has been for 14 months. The Lloyds barometer calculates overall business confidence by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.
The most recent IHS Markit/Cips manufacturing purchasing managers index (PMI), for January, showed that the sector has enjoyed its best performance for nine months. Another survey by the CBI (Confederation of British Industry) was also positive in suggesting “the biggest wave of optimism among smaller manufacturers for six years” with 45% of these SMEs reporting that they were more optimistic following the election.
In addition, the Bank of England has kept interest rates at the same level, despite expectations that they would be cut. The outgoing BoE Governor Mark Carney said: “the most recent signs are that global growth has stabilised”.
But much of this is about sentiment where the proof of the pudding will be in increased orders on business’ books and improved cash flow.
On the positive side, productivity (output per hour) increased in January, by 0.1% in the services sector and by 5.7% in construction, according to official figures from the ONS (Office for National Statistics). The results of another survey by the finance firm Together concluded that British SMEs plan to invest £1.7bn over the next two years.
It has to be said that much of this “improvement” is from a pretty low base given that the economy ended 2019 at near-stagnation point, so this is not yet really any indication of a growing economy, although it is a positive shift.
There have also been some encouraging government noises about increasing spending to address the economic inequalities between the North and Midlands and the South which could be good news for Northern businesses. Other government initiatives in the pipeline are likely to benefit the house building and construction industries.
Despite the optimism there is a long way to go before most businesses and especially those involved in farming, fishing and food export, will know the shape of any proposed trade deals, with the EU and with the USA so the short-term for them is not especially encouraging.
The Chancellor, the Foreign Secretary and the Prime Minister have all in the last few days signalled a very hard line negotiating position with the EU over the shape of any agreements which the Government hopes to achieve by the end of 2020. Whether this is a negotiation tactic or a ‘die in the ditch’ strategy we shall find out quite soon.
Concerning input to the outcome there have been some reports that the Government has been ignoring requests from business bodies, such as the CBI (Confederation of British Industry) and the FSB (Federation of Small Businesses) to include their representatives in the forthcoming trade negotiations with the EU.
There are also still the unresolved issues of how the current skills shortage and migrant labour issues will be addressed.
No doubt a level of certainty for some businesses will emerge during the budget, which is due to be announced on March 11. Well at least we shall learn more about the Government’s priorities.
In summary, while it is encouraging that there has been a return to more positive sentiments from UK business leaders, there is a long way to go before we can be confident that they are matched by revitalised UK business activity at home and abroad.

Tags business activity, Business Confidence, Business Recovery

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

Dire insolvency figures for 2019 – and little respite in sight?

Post author By a.withers
Post date February 4, 2020
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The final quarter insolvency figures for 2019 make grim reading, as does the regular Red Flag update from insolvency and recovery firm Begbies Traynor.
The main messages from the latest insolvency figures, published for Q4 2019 by the Insolvency Service at the end of January, were that in 2019 underlying company insolvencies increased to their highest annual level since 2013 driven by a by 8.2% increase in CVLs (Creditors’ Voluntary Liquidations) which were at their highest level since 2009 and by a 24.0% increase in administrations, their highest level since 2013.
Construction, the wholesale and retail trade and accommodation and food services suffered the most, as they had been doing all year.
Begbies Traynor’s Red Flag update published last week also piled on the misery, with findings that a record 494,000 UK businesses are now in ‘significant financial distress’ with property, support services, construction and retail businesses suffering the most. These figures were the highest-ever since the company began reporting its Red Flag research 16 years ago.
Julie Palmer, partner at Begbies Traynor, said: “Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues.”
But, arguably, the worst insolvency figures could yet be to come.

Bellicose politicians and European stagnation

On Friday night the UK formally left the EU. While this has established a level of political certainty, for business the economic uncertainty continues for at least ten months before our trading relationship with EU has been negotiated.
The negotiation timetable helps us know when we might have certainty about our trading relationship. The first being the end of June as the last day by which any extension to the 11 month transition period can be sought although as things stand the PM has ruled that out. Without an extension the deadline for a Brexit trade deal is the 26th November as the last date for it to be presented to the European Parliament if it is to be ratified by the end of the year.
Notwithstanding the uncertainty of its trading relationship with the EU, the UK can now begin negotiating its own trade deals with other countries.
But whoever heard of a trade deal being formalised so quickly?
Furthermore, this will all take place in the context of stalling economic growth in the EU, particularly in France and Germany as revealed last week:
“Gross domestic product (GDP) in the currency bloc rose by just 0.1% in the fourth quarter of 2019 from the previous quarter, according to the EU statistics agency Eurostat.”
Stock markets were also dropping dramatically, which has been attributed largely to the spread of Coronavirus that has led to a lockdown of much of China.
All this, without taking into account changing consumer behaviour and confidence, partly due to increasing debt levels and to environmental concerns. Perhaps, given the 6% annual increase in personal insolvency figures over 2018, now at its highest level since 2010, there is also a degree of job uncertainty. In retail, for example, almost 10,000 jobs have been lost since the start of the year and 57,000 went in 2019, according to the Retail Gazette.
The Prime Minister and foreign secretary, Dominic Raab, seem set on taking a very hard line ahead of negotiations with the EU. While there are some that take the view that in negotiations it is best to start off taking as hard a line as possible then softening as they progress, given that the remaining countries in the EU clearly have their own problems that they will be seeking to solve the words “rock and hard place” spring to mind.
So, there is a distinct possibility of a hard Brexit, one without a deal although message spin is likely. If this is the case then the uncertainty for business will continue beyond the end of the year until a new normal is established.
We therefore endorse the advice of Eleanor Temple, chair of R3 (the insolvency and recue industry body) in Yorkshire:
“These insolvency figures should be a wake-up call to any director of a company which is finding it hard going at the moment. Anyone in this position should look to take objective advice from a qualified, professional source, to decide the best path forward – and the earlier this is done, the better.”

Tags Business Confidence, economic recovery, Insolvency, trade deals

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting General

What items are top of businesses’ post-election wish list?

Post author By a.withers
Post date January 16, 2020
No Comments on What items are top of businesses’ post-election wish list?

Inevitably many promises were made during pre-election campaigning but how many will be delivered and what items are top of businesses’ post-election wish list?
There is no question that there are many urgent domestic issues that need tackling and were “parked” during the on-going wrangling over Britain’s referendum to leave the EU.
However, now that the so-called “party of business” has been returned with a solid majority, perhaps businesses will see some action on the issues that have left them feeling that they were overburdened and struggling to carry a heavy weight with little support.
While many business groups have been calling for the closest possible trade alignment with the EU post-Brexit it will be a year – or more – before the shape of any deal is known.
In the meantime, there are plenty of items on the business post-election wish-list that can be progressed.
Perhaps the biggest and most pressing burden needing attention is a thorough reform of Business Rates. Of course, the loudest cries for this have come from the retail sector, particularly from High Street retailers, but there is no question that the current levels, and the slow pace with which appeals are addressed, is a heavy burden for many SMEs.
However, the Federation for Small Businesses (FSB) leader Mike Cherry, has warned that it could take up to five years to complete a rates review and reform
Arguably of equal importance is the difficulty many businesses have in finding people with the appropriate skills and this has been impeding growth plans.
While the new Prime Minister has promised an overhaul of immigration policy, this will affect how and who firms can recruit. It remains to be seen how the proposed three-tier points-based system will work.
The idea is to fast track so-called Tier One entrants such as entrepreneurs, investors and people who have won awards in certain fields, and Tier Two people, skilled workers, such as doctors, nurses and other health professionals, who have a confirmed job offer leaving the need for less skilled, people such as for as agriculture and manufacturing as a problem. Essentially Tier Three employers will most likely have to show that they cannot recruit enough people from within the UK before other entrants are allowed into the country which may take some time and leave them with short and medium term staffing shortages.
Indeed business organisations such as the Confederation of British Industry (CBI) have said that the current immigration proposals are vague and impeding businesses’ ability to plan for growing staffing levels.
The final and most pressing issue, on which the Government has promised action and investment is the country’s neglected and in some cases crumbling infrastructure, particularly in areas like the North and Midlands.
Whether improving communications such as road and rail links, or broadband connectivity, it is going to require significant financial investment and given the lack of growth and current weak economy it remains to be seen how much money is in the Chancellor’s pot come the first budget in March.

Tags business growth, Business Rates, skills shortgae

Banks, Lenders & Investors Cash Flow & Forecasting Insolvency Turnaround

Sector blog – The north of England and the future of the construction industry

Post author By a.withers
Post date January 9, 2020
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There is no doubt that the construction industry has been having a torrid time in the last couple of years, especially since the collapse of the contractor Carillion with debts of £1.5bn at the start of 2018.
The most recently published insolvency statistics, for the third quarter of 2019, showed a 55% increase in the number of companies falling into administration, continuing an upward trend that had been going on all year.
There is little doubt that the political uncertainty since the UK voted in June 2016 to leave the EU has been a contributory factor to the industry’s woes, which are compounded by a shortage of people with appropriate skills. The skills shortage in the construction industry and its reliance on labour, often as subcontractors, has for several years been mitigated by the use of EU labour, particularly from Poland, but this, too, has been disrupted in the aftermath of Brexit as attitudes to migrants have become less welcoming.
But there have also been knock-on effects from the collapse of Carillion, which are being attributed to the structure of the industry, where major contractors like Carillion were focused on winning projects and managing them, relying on subcontractors to carry not only the responsibility for doing the work but also for taking the financial risk based on exposure to fixed price contracts and poor payment terms.
Indeed, when they go bust there is little left for creditors which highlights the level of credit risk.

Is the situation for the construction industry about to change?

Now that the Election is over and that the Government has a solid majority, hopefully, it will focus on the many pressing domestic issues that had been overshadowed by Brexit, not least the economic imbalance between various UK regions and London.
Indeed, the Prime Minister has already been warned that unless more attention is paid to the North of England particularly, those voters who lent him their vote, they may well withdraw their support equally quickly if they don’t see tangible investment.
In late December and again this week there were some signs that the message had been received and understood.
The Prime Minister had already promised that their trust in his government would be repaid and both The Times and the BBC were reporting that there was the prospect of changes to Treasury rules coming that would allow more cash to be allocated to projects outside of London and the South East, notably on infrastructure, business development projects and schemes like free ports.
Then, on Tuesday, when March 11th was announced as the date for the Chancellor’s first budget, the predictions of Treasury changes were again emphasised:
“In the intervening two months, the Treasury will have to work up a new National Infrastructure strategy that delivers on the plan to rebalance regional inequalities, some of which stem from decisions made nationally on, for example, transport spending.”
While doubts have been raised about the viability of the proposed HS2 rail project to connect London to the North, said to be likely to cost almost three times more than predicted, should this radical rethinking of Treasury rules come to pass, hopefully it could open up opportunities for the construction industry to work on plenty of other big projects in the North and possibly also the Midlands.
The other area that is likely to benefit the industry is a massive house building initiative. While no policies have been announced, Dominic Cummings’ Alternative Civil Service may light a bonfire under planning restrictions that are often blamed as the impediment to achieving previous governments’ targets. I am also sure we shall see more financial stimulus aimed at new owners, again all initiatives that will benefit the industry irrespective of what happens to the economy.

Tags Business Recovery, construction industry, Insolvency

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Key Indicator – Stock Market behaviour predictable or not?

Post author By a.withers
Post date January 2, 2020
No Comments on Key Indicator – Stock Market behaviour predictable or not?

At the start of the new decade predicting stock market behaviour is anything but an easy task.
A year ago, the pundits variously predicted that the year-end valuation of the FTSE 100 would be anywhere between 7200 and 8400 points. In the end, at close of business on 31^st December it was in the mid-7000s at 7542 below most predictions but it was still a stonking year.
Over the last year, stock market values, including the UK’s FTSE 100 and 250, have risen an astonishing amount to make 2019 one of the strongest years ever, despite a sluggish global and EU economy, US and China trade wars and Brexit uncertainty.
According to the business news two days ago the Dow Jones industrial average has seen a rise of almost 25% having reached record highs day after day, the broader S&P500 is up 30% and the tech-heavy Nasdaq has grown 40% in value. The FTSE100 in London is also close to its record high, as is the Dax30 in Germany.
In so-called “normal” times the stock markets traditionally go down when the interest rates go up which may explain the stock market values given the unprecedented period of low interest rates set by Central Banks that have done everything they could to support their countries’ weakening economies in their attempt at stimulating growth or more accurately avoiding recession.
But what is “normal” given that some Central Banks including European Central Bank, Japan, Sweden, Denmark and Switzerland have set negative interest rates?
To make predictions more difficult, this has been going on now for more than 10 years, since the 2008 Financial Crisis, and growth/recovery is still pretty sluggish despite the stimulus.
Usually, over a 10-year period there is a natural economic cycle from “boom” to “bust”, but the “bust” has yet to come, and nor is it being predicted. More of the same seems to be the view of most economists.
However a few pundits, notably the economist Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business, argue that the stock markets are far too optimistic, while the business writer Rana Foroohar, author of Don’t Be Evil: The Case Against Big Tech and associate editor at the Financial Times, predicts that the next crash will be brought about by the concentration of power in the hands of big tech companies like Apple, which have built up huge amounts of debt in their quest for power. She says: “Rapid growth in debt levels is historically the best predictor of a crisis.”

So, why have stock market valuations continued to climb?

In my view, two things have driven the value of companies listed on the stock market.
Firstly, businesses have broadly maintained their profitability by reducing overheads through slimming down management and not reinvesting. This has hidden their decline in productivity because profitability has been maintained. I believe that the cutting out of swathes of management has made many businesses extremely lean but left them without scope for responding to growth, with little experience for investing in new technology and for implementing the changes necessary to remain competitive.
Secondly, the numbers of listed companies have declined leaving fewer in which to invest money. Given that investors want to invest in profitable businesses this has meant that the pool of investable companies has also shrunk driving up the value of those that should be part of an investment portfolio. This distortion is likely to encourage a shift from the growth investment strategy preferred by long-term investors to one of value investment preferred by those with a higher appetite for risk. Indeed, picking winners is difficult as those who backed Neil Woodford will attest.
You could argue that UK based companies exporting abroad with foreign investors have benefited from exchange rates problems due to Brexit to make more locally focussed companies more attractive but this should only be part of a value investment strategy and still leaves the long-term investors looking for fundamentally sound businesses.
It’s possible that once Brexit is under way after January 31, there will be a re-rating because the companies that import from abroad have suffered disproportionately.
It will only take the Central Banks raising interest rates to more normal levels for a major stock market crash to become inevitable.

Tags business growth, Investment, stock market

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Do High Street banks care about their customers?

Post author By a.withers
Post date November 28, 2019
No Comments on Do High Street banks care about their customers?

High Street banks rely on providing a service to customers yet too often it seems that customers are the last thing banks care about.
Of course, banking is also a business and therefore subject to the pressures and responsibilities of any business to remain compliant and profitable.
However, I would argue that their existence is entirely down to the loyalty of their customers. Yet, customer loyalty is being stretched by the seemingly endless IT problems and closure of branches and ATMs that inconvenience customers, particularly SMEs in rural areas.
Most recently, TSB, encountered yet another IT failure, just a year after the mammoth meltdown which cost it an estimated £366m. To compound the distress for customers, it has just announced that it intends to close another 86 branches, cutting up to 400 jobs over the course of next year.
IT failures have not been confined to TSB, however, and in 2018, the Financial Conduct Authority (FCA), said the number of incidents reported to it had increased by 187% in the past year, 65% of which were from high street banks.
This has prompted a committee of MPs to call for faster action in resolving complaints and awarding compensation, along with more decisive regulatory action, calling the current situation unacceptable.
According to the consumer organisation Which? “Banks and building societies closed a total of 3,312 branches in between January 2015 and August 2019, with an average of 55 closing each month”.
Which? has been tracking the closures and its breakdown shows 1,094 for the RBS Group (NatWest, Royal Bank of Scotland and Ulster Bank) and 569 for the Lloyds Group (Lloyds Bank, Halifax and Bank of Scotland) while it estimates that Barclays has closed approaching 500, although the bank has declined to share figures with Which?
In addition, the organisation has found that 5,000 free-to-use ATMs had been lost between January 2018 and May 2019, the vast majority in rural and more deprived areas.
But it has not only been IT failures and branch closures that have arguably reduced trust in banking.
Only last month, Barclays announced its debit card holders would be able to deposit money but not withdraw cash from a post office counter from January 2020 as a cost saving measure to save £7 million. Following a huge outcry that situation was quickly reversed.
Nevertheless, it was an indication of the general attitudes of the traditional High Street banks given the number of branches and even ATMs that have been disappearing from villages and towns throughout the UK, on the tenuous argument that customers prefer to bank online. And despite the well-known unreliability of internet connections in such locations.
It all adds up to a massive headache for anyone who lives or works outside of a main city location.
So it is with some scepticism and a few hollow laughs that we note the latest Government initiative, a SME Financial Charter, to which, approximately 20 banks and financial service providers have signed up.
The charter is aimed to support SMEs through Brexit and signatories make five pledges:

We’re open for business and ready to lend;
We’ll help you prepare for Brexit and beyond;
We’ll support your application and signpost other options if needed;
We’ll treat you fairly at all times;
We’ll work with the government-owned British Business Bank to support SMEs.

The charter is voluntary and clearly limited in scope.
It would have been more to the point if it had been an ongoing pledge, not confined to helping SMEs with Brexit and its aftermath, and if it had been given some regulatory teeth to encourage High Street banks to offer a real service to SMEs and other customers.

Tags customer service, High Street banks

Banks, Lenders & Investors Cash Flow & Forecasting Finance General Insolvency Voluntary Arrangements - CVAs

Post-Christmas apocalypse for the retail sector?

Post author By a.withers
Post date November 12, 2019
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As we head for its most crucial shopping period in the wake of Mothercare and Mamas & Papas collapsing into administration, I make no apologies for revisiting the UK’s retail sector.
Following last month’s Brexit Halloween deadline and with Black Friday, Cyber Monday and Christmas ahead of us retailers have reportedly stockpiled seasonal products earlier than usual but the consumer uncertainty remaining no one knows how much stock will remain unsold in the new year.
The Confederation of British Industry, the country’s leading business lobby group, said retailers’ stock levels compared with the volume of expected sales had risen to the highest point in October since it began compiling retail sales estimates in 1983.
This is against a backdrop of dramatically narrowing profit margins, falling consumer confidence and repeated demands for comprehensive reform of business rates falling on seemingly deaf Government ears.
A new report by the global professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics, has found that store-based profit margins for the top 150 UK.retailers have more than halved in less than a decade – dropping from 8.8 percent as seen in 2009/10 to 4.1 percent in 2017/18.
This, it says, is the result of increasing operating costs, inflexible lease structures and changing shopping habits. Yet, it concludes that there is still demand for the High Street physical retail experience “presenting opportunities for forward-thinking incumbents, entrepreneurs and investors. Those that collaborate with landlords and local authorities will be the big winners going into the next business cycle”.
But with a December 25^th Quarter Day deadline for the payment of quarterly rents, cash flow is likely to be tight for many retailers who won’t get much support from landlords.
Indeed, headwinds are building up for retail landlords in the retail sector such as Intu, the shopping centre owner, which has warned that it will have to raise more money from shareholders. It has said that its rental income has been battered by a wave of controversial retailer restructures, by such retailers as Monsoon and Arcadia, using CVAs (Company Voluntary Arrangements) to negotiate rent reductions.
In addition to rent, rates are also an ongoing problem for retailers. On October 30^th the Treasury Committee, a cross-party group of MPs, called for an urgent review of the whole business rates system, saying that it was broken, having outpaced inflation for many years and grown as a share of business taxes, placing an unfair burden on bricks and mortar shops. Not only that, but, it also criticised a backlog of 16,000 appeals against business rate decisions and called for the government’s valuation office to be properly staffed.
This was only the latest in a seemingly endless series of calls for reform, that had come from such bodies as the FSB (Federation of Small Businesses), the British Retail Consortium and others throughout the year, with FSB chairman Mike Cherry warning of a very bleak winter ahead.
With consumer confidence currently at a six-year low according to research by YouGov and the Centre for Economics and Business Research Mr Cherry’s prediction isn’t a surprise.
With an estimated 85,000 jobs having already gone from the retail sector over the last year, and approaching 3,000 more coming after the latest retail closures how likely is it that consumers will rush out and spend during the festive season?
The likelihood of any Government action has, of course, receded into the distance given that politicians are now not sitting, but out on the campaign trail ahead of a General Election on December 12^th.
Whether a new government can shift its focus away from the ongoing and ever more tedious Brexit saga and onto more pressing domestic concerns remains a very big question but the party manifestos focus on sectors other than the retail sector which doesn’t bode well for them in the short term.

Tags Business rates reform, CVAs, High Street Retail

Banks, Lenders & Investors Cash Flow & Forecasting Finance General Turnaround

Key Indicator: no respite for the global economy as conditions get worse

Post author By a.withers
Post date November 5, 2019
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As we head towards the end of the year it is a good time to look at the current state of the global economy.
Trade wars and the threats of tariffs being imposed by the US on China have become a wearyingly familiar story as US President Donald Trump continues his policy of ‘putting the American economy first’ at all times. It is not just China in the firing line, the rhetoric has escalated with his threat made in October to introduce a series of 25% tariffs on a range of exports worth an estimated £5.8bn from the EU.
But this is not the only trade dispute in the global economy as Japan and South Korea’s disagreements threaten the production of smartphones, computers and other electronics, while yet another Brexit delay, and now a UK general election, all add to the uncertain economic outlook in both the EU and the UK.
Growth has been slowing in India, particularly in its automotive sector, and to an extent in China also.
At the same time there seems to have been an upsurge in popular political protests across the world with demonstrations taking place in Spain, Iraq, Lebanon, Chile, Venezuela and Hong Kong, to name but a few.
Arguably, political unrest, too, has consequences for the global economy, particularly in a place like Hong Kong, which has for years been a focus for dynamic business activity but is now in recession after five months of civil unrest. Unrest has also led to Chile having to cancel its hosting of the November APEC (Asia-Pacific Economic Cooperation) meeting at which the United States and China had been expected to sign a deal to ease their trade war. As yet no alternative venue has been announced.
The growth in global trade may have slowed to 3.0% this year – the lowest since the 2009 recession – according to International Monetary Fund (IMF). Data provider Refinitiv has reported that Global deal making has eased to the slowest pace in more than two years, with activity falling 11% so far this year to $2.8 trillion.
Not surprisingly all this has prompted the IMF to predict that global economic growth will be just 3% this year, its lowest level since the financial crisis and a downgrade from the organisation’s April prediction.
Earlier in the year it also warned in its global financial stability report that the next major economic crisis would be similar to the financial crisis of 2008; while it didn’t say when it believed this is a likely consequence of the estimated $19 trillion corporate debt mountain in eight major economies. This warning was echoed by the Bank for International Settlements (BIS) in its annual health check of the global financial system.
The new IMF head Kristalina Georgieva has also warned that Brexit in whatever form will be “painful”, adding to the effects of a global slowdown.
Meanwhile with Germany in recession and the EU economy stuttering, ECB chairman Mario Draghi announced a cut in interest rates to a new record low at minus 0.5 percent as part of a broader stimulus package making it expensive for banks to hoard cash.
The signs are not looking good for improvements in the global economy in 2020 and it is becoming increasingly clear, in my view, that politics is contributing to and inextricably entangled with the stormy economic weather besetting business.

Tags global economy, trade wars

Banks, Lenders & Investors Finance General Insolvency

Investors now putting environmental concerns first

Post author By a.withers
Post date October 29, 2019
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The UK’s largest investors put environmental concerns and corporate governance issues as top of their lists when considering companies in which to invest, according to research by EY.
However, the respondents awarded a “could do better” to such areas as audit, corporate reporting, trust, and reputation, according to a report on the research published by CityAM.
Clearly the activities of campaigners like Greta Thunberg and Extinction Rebellion have significantly raised awareness on environmental issues.
But the profile of environmental concerns is also being raised by the annual world summits on ethical finance, the most recent of which was held in Edinburgh in early September and was attended by senior representatives from more than 200 companies and organisations.
The summit is organised by the Global Ethical Finance Initiative, which oversees, organises and coordinates a series of programmes to promote finance for positive change.
In early October, Mark Carney, Governor of the BoE (Bank of England) warned that companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt.
But he also pointed out that “great fortunes could be made by those working to end greenhouse gas emissions with a big potential upside for the UK economy in particular”.
The Peer to Peer lending platform Lending Works says that Socially Responsible Lending (SRI) has risen up the investors’ agenda in the last five years and estimates that 79% of Generation Xers and 67% of Baby Boomers identify it as an issue of concern.
Identifying ethical investments depends on positive and negative screening by investment funds. Negative screening by fund managers excludes certain activities, such as fossil fuels, alcohol, intensive farming etc from investment, while in positive screening fund managers actively seek out opportunities that contribute positively to environmental concerns such as organic farming, green energy, and public housing.
This research can be tricky for investors to access independently and the advice is to use a financial adviser well versed in ethical funding, and also as ever, to remember that the value of shares and investments can go down as well as up.
But it is encouraging that environmental concerns have risen to the top of the investor agenda.

Tags environmental concerns, investors

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance Insolvency

Directors of companies in financial difficulties should be aware of their pay and perks!

Post author By a.withers
Post date October 24, 2019
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Executive pay and perks have been creeping up the agenda with politicians and the public increasingly questioning the rewards given to top CEOs when companies fail.
But should this be done well before any potential failure and in particular when highly paid executives are seeking support for the restructuring and reorganisation initiatives that is necessary when their company is in financial difficulties?
Leadership involves setting an example and when the chips are down this means making demonstrable self-sacrifices.
This week, the Financial Times reported that Standard Chartered bank CEO Bill Winters may have his total pay cut and Namal Nawana will be leaving his CEO role at Smith & Nephew after less than a year after investors turned down his request to increase his $6m package to nearer $18m-$20m.
But it is not only executive pay that has come under fire, this is also true of pensions and other executive benefits.
In September the influential investor group IA (The Investment Association), told companies they must publish credible action plans that align executive pension pay with their workforce by 2022, or risk further shareholder revolts.
A Guardian report revealed that the IA, which represents City firms with £7.7tn in assets under management, has warned that it will “slap companies’ annual reports with a “red top” or highest possible warning label if they fail to share concrete action plans to align executive pension pay with the majority of staff and continue to offer top bosses retirement benefits worth over 25% of salary”.
Clearly shareholders are becoming less willing to support the “greed is good” philosophy that grew out of the Chicago School economist Milton Friedman’s Neoliberal economic model whereby businesses exist solely to make money for their shareholders and executives should be rewarded accordingly.
How much of this is due to external pressures, such as the growing awareness that perpetual growth is incompatible with a sustainable environment, and how much to a seemingly endless series of high profile business collapses, from Carillion to Thomas Cook with massive debts but still high executive pay and perks?
Are CEOs worth their executive pay and perks?
The CIPD (Chartered Institute of Personnel Development) monitors the gap between average CEO pay and that of workers.
Its most recent report found that average salaries for chief executives fell by 13% between 2017 and 2018, but they still earned 117 times more than the average UK full-time worker, despite the introduction of new standards for corporate governance and the introduction of the Audit, Reporting and Governance Authority by the Government earlier in the year
The argument has always been that in order to attract the best a business has to pay for talent, but beyond their annual reports, there is little or no guidance, or seemingly effort, made to monitor effectiveness or track improvements in profitability following the appointment of new CEOs.
In the most recent example, the death of travel company Thomas Cook, only now are questions being asked about the high remuneration of its CEO and executives when contrasted with its massive accumulated debt, and about the wisdom of turning down offers for lucrative parts of the business that might have made a difference.
At a recent event, moreover, Charles Cotton, CIPD senior adviser for performance and reward, said employers risked sending the message that executives’ contributions were “valued more highly” if their pay was rising when employee salaries had remained largely stagnant since 2008.
Clearly, there is a need for much more awareness among executive about the messages their pay and perks convey to stakeholders. The level of scrutiny they are being subjected to will only increase.

Tags executive pay and perks, failing companies, Insolvency

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

Is the death of Thomas Cook a sign of more to come in the travel industry?

Post author By a.withers
Post date October 22, 2019
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Commentators have been quick to predict the death of the package holiday and in some cases of much of the travel industry following the demise of Thomas Cook in September.
But is this really the case?
Johan Lundgren, the chief executive of easyJet, argues that it is too soon to predict the demise of the travel industry, or indeed of package holidays.
In an article in the Daily Telegraph he says: “sales of holiday packages have grown faster than the economy every year for the past 10 years”.
There is no doubt, however, that technology has made a significant difference to the way people search, book and pay for their holidays.
Lundgren acknowledges that requirements and buying methods have changed significantly: “Rapid development in technology and AI, combined with a focus on data now allows the customer to find holidays suited to them online”.
Holiday companies, he said, needed to invest in technology to support customer interactions.
The tour operators trade body ABTA (Association of British Travel Agents) said 51% of people it surveyed in July had taken a package holiday in the past year, up from 48% in 2018.
According to statistics from the Office for National Statistics (ONS), the number of package holidays taken in the UK has been rising steadily since 2014, reaching 18.2m last year.
In its latest quarterly bulletin on overseas travel in general, published in September, the ONS results found that UK residents spent £4.5 billion on visits overseas in June 2019 (1% more than in June 2018), however, they made 6.8 million visits overseas in June 2019 (7% fewer than in June 2018).
There are also plenty of successful small, independent local travel agents offering tailored packages to fit customers’ requirements. We know of at least three in Suffolk alone and there are doubtless many more around the country.
So clearly once people have decided where they want to go and what they want to do, they still feel the need for someone to take care of the details and to have the assurance of having someone available should things go wrong.
Furthermore, the price paid by consumers and amount received by holiday providers might provide a clue to why travel operators and package travel companies ought to survive. Most online purchases, in particular for accommodation, are now handled by firms like booking.com, trivago.co.uk or tripadvisor.co.uk who charge hotels up to 30% of the package. This is a huge margin for travel companies to exploit.
So, what happened to Thomas Cook?
The company was launched in 1841 by a Derbyshire preacher, Thomas Cook, and became one of the world’s biggest companies to offer “integrated holidays” (ie package holidays).
The company issued two profits warnings in 2018 and in May revealed it was carrying huge amounts of debt – around £1.2bn. According to the Financial Times, many of its wounds were self-inflicted: “Successive managements allowed debts to balloon. The company revealed a debt pile of £1.2bn in May and recorded a £1.1bn write-down from its ill-fated acquisition of MyTravel, a UK rival. About one-third of Thomas Cook’s sales was spent just on servicing its loans”.
Generous remuneration to its executives, including an estimated £20m in bonuses and payment of more than £8m over the past five years to chief executive, Peter Fankhauser, have also been cited as excessive.
The company also received, and declined, five offers for its profitable airline operation and as if that were not enough, the FCA (Financial Conduct Authority) is investigating EY’s audit of the company’s accounts.
The German international broadcaster, Deutsche Welle, has speculated that opaque private equity deals amid low interest rates may also have played a part in its collapse.
Arguably an out-dated business model depending too much on high street retail outlets and a failure to adopt modern technology will have contributed too.
But while there will undoubtedly be casualties among travel firms that fail to adapt their business models and practices to modern consumer requirements, and, of course, the whole industry is vulnerable to the volatility of consumer confidence in the context of an eventual post-Brexit future with fears about job security, it would be unwise to predict the death of the travel industry as a result.

Tags Business Insolvency, package holidays, travel industry

Banks, Lenders & Investors Business Development & Marketing Finance Rescue, Restructuring & Recovery

WeWork reminds us why we should not rely on charismatic leaders and the investment bank advisers who flatter them

Post author By a.withers
Post date October 17, 2019
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This week the new management of WeWork the business space property rental company announced that it was preparing to axe 2,000, or 13%, of its workforce.
It has been calculated that up to 5,000, or a third, of the workforce will ultimately have to go.
This is the latest episode in an increasingly sorry saga, which last month saw its co-founder Adam Neumann step down as chief executive and relinquish control over the company. Mr Neumann also returned $5.9m worth of stock to the firm, which he had controversially received in exchange for his claim over the “We” trademark.
After announcing its intention to launch on the US stock market earlier in the year, the company, which has more than 500 locations in 29 countries, had to postpone its plans when its viability and corporate governance came under closer scrutiny.
The business, which was estimated to be worth some $47bn when the intended float was first unveiled has since had its credit rating downgraded by the ratings company Fitch to CCC+ with a warning that its liquidity position is “precarious”. Earlier in September, Reuters had reported that the We Company could seek a valuation in its initial public offering (IPO) of between $10bn and $12bn, far below the $47bn at the start of the year. This figure is very different to valuations proposed for the IPO work reported in the Financial Times as between $46bn and $63bn by JP Morgan Chase, between $61bn and $96bn by Goldman Sachs and between $43bn and $104bn by Morgan Stanley.
These values were despite WeWork reporting a loss last year of $1.9 billion from revenue of $1.8 billion, these figures almost double those for 2017.
The recent turmoil is no doubt behind the recent announcement by two of its large landlords in London who have said they will not be signing new leases with WeWork for the foreseeable future.
Yet, there are other companies operating similar business models, such as the UK listed IWG group that owns the Regus brand which reported a net profit of £106 million from revenue £2.5bn. Two other similar business would also seem to be doing well: The Office Group and The Argyll Club formerly London Executive Offices.
As for valuations, IWG’s market capitalisation is about £3.5bn which is far lower than those proposed for WeWork but as a listed company might be more realistic.
Another example of value for a similar business model is the sale in October 2018 for £475 of London Executive Offices that had been up for sale for two year sale after an initial valuation in 2016 of £700m.

Hubris eventually catches up

Much has been made of the character and lifestyle of Adam Neumann, not least the mixing of work and pleasure, which was also part of the WeWork culture, one that offered that will offered employees “every millennial-style benefit under the sun”, which may not be right for a property letting company.
He was famous for statements like “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”
Clearly his character initially charmed the company’s Japanese investor SoftBank, which owns 30% of the company and whose reputation arguably contributed to the initial IPO valuation of $47bn.
However, since then, potential investors have questioned its opaque corporate structure, governance and profitability. They have also questioned the links between Mr Neumann’s personal finances and WeWork.
The whole sorry saga, I would argue, is more about the initial credulous nature of the company’s investors and their belief in Mr Neumann, and less about a business model which has worked well for other similar companies. And the investment banks haven’t helped.

Tags charismatic leaders, credulous investors

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency

‘Caveat Emptor’ Is peer to peer lending too risky for peers?

Post author By a.withers
Post date October 15, 2019
No Comments on ‘Caveat Emptor’ Is peer to peer lending too risky for peers?

Peer to peer lending (P2P) enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.
As such, the lack of trust in middlemen has seen the emergence of peer to peer lending platforms as an attractive proposition for retail investors in a climate of low interest rates because they can offer better rates thanks to the lower overheads associated with online businesses. The lower overheads are also related to not having to pay a middleman!
The platforms are generally a website or app that facilitates this alternate method of financing, where the first emerged in 2005 and was brought under FCA (Financial Conduct Authority) regulation in 2014.
However, the FCA has been criticised as being too “light touch” in its oversight following the collapse in May this year of UK property finance peer to peer firm Lendy with £160m in outstanding loans of which it has been calculated more than £90m are in default.
According to CityAM, Lendy was placed on a FCA watchlist last year amid concerns about its inability to meet the standards required of regulated firms. Its subsequent failure is believed likely to result in retail investors losing £millions.
The demise of Lendy came a year after the peer to peer platform Collateral UK went into administration, reportedly, according to the website crowd funder insider, after it was discovered that it had wrongly believed it was authorized and regulated by the FCA under interim permission.
FCA chief Andrew Bailey has been reported as saying that the decision to authorise Lendy had been taken to reduce consumer harm, as refusing authorisation may have risked greater damage.
However, Adam Bunch of the Lendy Action Group, which claims to represent about 900 investors, said: “FCA authorisation was seen by investors as a stamp of credibility. Only now, after the platform has failed, do we learn that the regulator in fact saw authorisation as a way to contain a badly run business”.
I would add that the reference to ‘investors’ worries me since there seems to be no distinction between shareholders, secured lenders and unsecured lenders nor any understanding of ‘caveat emptor’.
Indeed, Lendy was a lending platform and there is no mention of the peers as retail lenders who have a prior ranking claim over investors (shareholders) but I am sure it highlights the ignorance among retail investors and lenders who might be better off seeking advice from professionally qualified middlemen.
Not surprisingly, there have been growing calls for tighter FCA regulation of peer to peer lenders and in June, following consultations, the FCA launched new, tighter regulations, most of which will come into effect in December this year.
They include introducing more explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes they advertise and a requirement that an appropriateness assessment (to assess an investor’s knowledge and experience of P2P investments) be undertaken, where no advice has been given to the investors and lenders.
In September the FCA also warned peer to peer lenders to clean up poor practices or face a “strong and rapid” crackdown.
Whether this will be enough to stem the reported exodus of investors’ money from peer to peer lending and to better protect them remains to be seen.
However, the warning to potential investors remains as it has always been to not invest any money you can’t afford to lose.

Tags investors, peer to peer lending

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Rescue, Restructuring & Recovery

Sector update: have there been improvements in care home viability?

Post author By a.withers
Post date October 8, 2019
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It hardly seems any time since I last assessed the viability of the UK’s care home sector, but in the light of recent developments with one of the UK’s largest providers it’s time for an update.
The last blog in December 2018 focused on the implications of the collapse of Southern Cross in 2011. This time it has been prompted by reports this month that Four Seasons, Britain’s second-largest private care home provider with around 320 sites and 22,000 staff, has confirmed it has failed to pay rent on time. It is being seen as a negotiating tactic in order to cut bills, but is this really the case?
Its latest troubles began in 2017 when its owner Terra Firma was unable to pay interest on its debts, most of which are owned by private equity firm H/2 Capital Partners who took control and have overseen the group since then.
The business, which has more than £700 million in debts, appointed Alvarez & Marsal as administrators in April 2019. While the administrators have sought a buyer, it would seem most likely that H/2 will end up cherry picking the best homes and roll its debt into a new vehicle.
An estimated 70% of the care homes in England are small, mainly family-run businesses, while around 30% are owned by overseas investors, according to information published by the LSE in May this year.
In the LSE’s view many of the latter group of owners: “view them as assets for extracting large sums in the form of interest payments, rent and profit”.
In 2014 after the Southern Cross debacle the sector regulator CQC (Care Quality Commission) introduced a new requirement – a statement of financial viability, in a bid to ensure there were no repeats of the situation.
However, it clearly has not worked.
In August this year the insurance provider RMP published an assessment of the current state of care home viability, in which it quoted findings by Manchester University that “the financial models for nearly all the larger private equity-owned care home chains carry significant external debt and interest repayments”.
In addition, it said that spending by local authorities on social care had fallen while at the same time as costs have risen. This rise is attributed to a number of factors several of which are being related to Brexit: difficulties in staff recruitment and retention, restrictions on immigration numbers and, increases of the minimum wage.
Indeed, the GMB Union cites concern from the newly-published Operation Yellowhammer documents regarding the sector: “The adult social care market is already fragile due to declining financial viability of providers. An increase in inflation following EU exit would significantly impact adult social care providers due to increasing staff and support costs, and may lead to provider failure, with smaller providers impacted within 2 – 3 months and larger providers 4 – 6 months after exit”.
The Yellowhammer document, it says, therefore advises planning for potential closures and the handing back of contracts.
Despite these problems, demand outstrips supply in most local authorities, with an estimated current shortage of 65,000 care home beds, while a recent report by Newcastle University finds that an additional 71,000 care home spaces will be needed in the next eight years.
Clearly, funding the cost of care homes is itself in need of urgent attention and support. Call in the restructuring advisors?

Tags business viability, care homes finance, Investment

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance Insolvency

What is AIM and is it beneficial to SMEs to apply for AIM listing?

Post author By a.withers
Post date September 24, 2019
No Comments on What is AIM and is it beneficial to SMEs to apply for AIM listing?

It is coming up to 25 years since AIM (Alternative Investments Market), the London Stock Exchange’s junior stock market, was launched and it now lists around 3,600 businesses.
According to the accounting firm BDO, “AIM is the most successful growth market of its type in the world” and in the last five years AIM-listed businesses “have created an additional 76% jobs, now employing almost 390,000 people”.
The London Stock Exchange website explains that AIM is targeted at smaller, and growing, businesses and offers them “the benefits of a world-class public market within a regulatory environment designed specifically to meet their needs”.
It is a multilateral trading facility, operated and regulated by the London Stock Exchange under FCA rules.
Candidates for AIM listing do not have to have a trading track record, but they must abide by the rules. There are very clear guidelines on how to apply for AIM listing on the Stock Exchange website.
They must appoint and maintain an AIM approved Nominated Advisor, also known as a NOMAD, who is responsible to the Exchange for assessing the appropriateness of an applicant for AIM. The NOMAD also advises and guides their client through the AIM listing process and once listed ensures it complies with its ongoing responsibilities.
The Stock Exchange will suspend trading of the company if it ceases to retain a nominated advisor and if a new NOMAD is not appointed within a month, its AIM listing is cancelled and its shares can no longer be publicly bought or sold.
Albeit with advice from a NOMAD, application for AIM listing is relatively straightforward but listing does cost an estimated £400,000 to £600,000 a year. This covers the NOMAD and other adviser and broker fees, plus AIM membership at around £100,000 per year, according to the website startups.co.uk.
Startups lists some of the pros and cons of AIM listing, the main advantage being future access to raising further funds after the IPO (Initial Public Offering). It says, “AIM listing is being seen as an increasingly attractive investment class to institutions such as pension funds”.
“It also raises the profile of a business, as does having Plc status”, it says. While Plc status requires a minimum of £50,000 share capital, AIM companies tend to have much more and there is the attraction of having publicly tradeable shares.
The downsides according to Startups, are not only the financial cost but also the difference between running a Plc as opposed to a privately-owned business, plus the business will be vulnerable to the ups and downs of share values.
I would add another downside, the need to make public disclosures about matters that influence the share price. This may be great when an AIM company is doing well but can be disastrous for one that isn’t, especially one that needs restructuring.

Tags AIM, business growth, Investment

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

The cost to SMEs of IT failures

Post author By a.withers
Post date September 17, 2019
No Comments on The cost to SMEs of IT failures

The pressure to do everything online is inexorable but what is the cost to businesses of IT failures?
Perhaps one of the most frequent and difficult issues facing SMEs is the seemingly frequent meltdowns of both banking systems and government websites.
This is without considering the issues of cyber-attacks on companies where the FSB has recently calculated UK small firms are subject to nearly 10,000 cyber-attacks a day, with over a million small firms hit by phishing, malware attacks and payment scams.
Obviously it is in businesses’ own interests to have robust IT systems in place including cyber security, but the frustrations of IT failures are a different issue and often not of their own making since the counter parties also need to have adequate IT systems and security at their end.
Since 2018 the FCA (Financial Conduct Authority) has required banks to publish information about the number of major operational and security incidents they have experienced.
Last month a BBC investigation revealed that bank customers face an average of 10 digital banking shutdowns a month, based on the figures published so far.
The figures for the 12-month period until the end of July 2019 are not exactly comforting. The top five worst “offenders in the list (with the figures in brackets showing failures for the 3 months between 1 April and 30 June 2019) were:
Barclays 33 (4);
NatWest 25 (7);
Lloyds Bank 23 (2);
RBS 22 (7);
Santander 21 (4).
This is at a time when an estimated 6000 small bank branches have been closed, often in small town or rural locations, while, according to analysis by Close Brothers Finance, 51% of SMEs visit a bank branch at least once a week while three quarters use online banking at least once a week, with 41% using it every day.
This would suggest that the costs of IT failures to SMEs, not only in delays, frustration and cash flow issues are considerable.
But it is not only the banks that are a problem. We have lost count of the number of times businesses have reported difficulties with Government websites, from the application process for Business Rate Relief, to authorising and accessing various HMRC websites, and the online court service where last January the entire civil and criminal court IT infrastructure collapsed for several days!
Where does the problem lie for IT failures?
Is the problem with the expectations of those commissioning IT systems, who perhaps do not understand the IT capabilities and limitations? In their understandable desire to win business are the software providers and developers, themselves often SMEs, failing to tell their potential clients honestly what the limits are to the systems they want to commission? Or more pertinently what you can have for the budget.
Or is it simply that the IT skills of the Fintech and other IT provider industries are just not good enough?
We know there is a skills shortage in the IT sector generally but Fintech is supposed to be one of the UK’s most successful sectors.
UK Fintech companies received £740m from venture capital in the second quarter of 2019, almost double the amount invested during the same period last year according to the CBI (Confederation of British Industry), with Challenger Banks like Monzo among the most successful cohorts in Fintech.
Data released by Tech Nation and Dealroom for the government’s Digital Economy Council showed that British tech companies attracted more foreign investment in the past seven months than in the whole of 2018. Another endorsement.
If SMEs are to rely more and more on IT and the tech services of banks and other institutions with which they have to interact, it is perhaps time to look more closely at the services being provided and to make a concerted effort to do something to prevent so many IT failures.

Tags business costs, business efficiency, IT failures

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery

Chaos and Confusion or Order and Clarity? Where are SMEs now with Brexit Planning?

Post author By a.withers
Post date September 12, 2019
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Brexit planning will continue to dominate the thinking and expenditure of the UK’s SMEs as Parliament is suspended for five weeks and the Government’s plans for leaving the EU on October 31 seem to be in tatters.
Parliament has forced the Prime Minister and cabinet to release its documents, called Operation Yellowhammer, on planning for a No Deal Brexit and has also blocked the possibility of the latter. Both are now, in theory, legal requirements as Acts of Parliament. However, disagreement prevails.
It is questionable whether the government will obey the law, especially if they can find a way out. Furthermore, there is now no Parliament, or Parliamentary Committees, sitting to scrutinise the Government although the press and Courts are fully engaged.
Notwithstanding the political gymnastics, businesses are deluged with upbeat exhortations and alleged offers of help of which the following is a selection from the last six weeks or so.
Liz Truss, the then International Trade Secretary, described Brexit as a “golden opportunity” for UK businesses and Lord Wolfson, CEO of Next was reported in the Mail on Sunday as being no longer fearful of a no-deal Brexit now that Boris Johnson is Prime Minister. One wonders whether he is now preparing to eat his words.
Last week Alex Brazier, the executive director for financial stability, strategy and risk at the Bank of England, claimed the UK’s financial system will remain stable after Brexit. Indeed, the BoE now claim a hard Brexit won’t be as disastrous as they previously claimed.
There have also been announcements of several offers of help to businesses with Brexit Planning.
The Business Secretary Andrea Leadsom has launched a £10m grant scheme for business organisations and trade associations to support businesses in preparing for Brexit ahead of October 31. The fund is open to business organisations and trade associations.
Barclays is to host a series of “Brexit clinics” in October and November, with the sessions designed to help its SME customers after Britain’s departure from the EU.
The Government also launched its own £100 million “Get Ready for Brexit” campaign designed, according to Michael Gove, to “give everyone from small business owners to hauliers and EU citizens, “the facts they need” to prepare for the UK’s departure from the EU on October 31st.”
Also, as I reported in July, the BCC (British Chambers of Commerce) launched its own Brexit planning guidance.

Is all this Brexit planning help and guidance just “smoke and mirrors”?

There is some evidence from SMEs on the ground that their businesses are already feeling the effects of the long-running Brexit saga and that they still feel there is little clarity to help them with Brexit planning.
Last month a QCA (Quoted Companies Alliance) survey of UK small and mid-cap companies found that 59% said it had distracted them from running their business, 16% have invested less in the UK, 43% say that preparing for Brexit has had a negative impact on their company’s growth while just 24% felt the Government had provided adequate information although more than half had taken steps to prepare for the no-deal scenario as best they could.
The real effects on the ground are already being felt.
The value of central EU public procurement contracts secured by UK businesses fell by 30%, to €108m (£99m) in 2018, from €155m (£142m) in 2017, research by UHY Hacker Young.
The British Ports Association (BPA) has dismissed a £10m Brexit fund for English ports as “a tiny amount of money”.
The UK Food and Drink Industry has highlighted its worries about regulatory clearance required for selling animal products to the European Union, warning that there is a serious possibility that, come October, listed status will not be granted.
Towards the end of last month the Guardian described the impact it has already had on one UK company, a Bristol-based manufacturer of industrial safety valves. It reported that at one time its exports were growing fast, with 130 employees and eight apprentices training to high standards, but since the referendum things have quickly changed. According to the owner: “Some EU customers instantly decided it was too much trouble and switched to EU manufacturers – we lost 10% of the business.”
He reported that to continue to trade in the EU post Brexit he needs to obey rules of origin, recording every raw material, tracking every component, requiring “horrendous” new IT systems, his various valves containing 30,000 different configurations and “tripling our admin workload”.
Order and Clarity for Brexit planning? Not quite yet it seems.
So, my advice to SMEs who have to contend with this ongoing Chaos and Confusion remains as it was in July:
For the time being the sensible strategy may be to hold off on any major investment, to focus rigorously on management accounts and cashflow, and to ensure strategy and business plans are as flexible as possible to cover a range of eventualities. It might even be worth contacting a restructuring adviser as part of your contingency planning.

Tags Brexit planning, business confusion

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting

Key Indicator – a snapshot of the current state of commodity prices

Post author By a.withers
Post date September 3, 2019
No Comments on Key Indicator – a snapshot of the current state of commodity prices

Ongoing fears of a global economic recession, not to mention the escalating trade war between the USA and China, are having an impact on commodity prices.
August has been a particularly torrid month, according to analysts, with iron ore prices in particular suffering a sharp drop – up to 30% according to a report in the Financial Times, although other sources also back this up.
The ongoing uncertainty has also had its effect on oil prices, with OPEC cutting production while the USA has increased theirs. This has had its impact on the futures price of oil, with Brent Crude for October falling 31 cents, or 0.5%, to $60.18 a barrel.
According to the latest analysis from Marketwatch.com, published on August 30, “Commodities will end August with a second straight monthly loss”.
It says that the S & P GSCI index, which tracks 24 commodities across five sectors was down by more than 4% at the end of August, following a fall of 7% in July.
Gold and Silver prices, on the other hand have been steadily rising, with Silver reaching a 1-year peak last week, breaking $17 per ounce and Gold prices rising by almost 7% in August.
In the grain sector, Marketwatch reports the biggest decline in corn, of more than 0.9% over the year. Corn futures prices for August were also down, by 9%.
Bloomberg publishes a useful summary of commodity prices covering three sectors, energy, precious and industrial metals and Agriculture here.
Stability is not yet in sight with the ongoing uncertainties over global trade, fears that Germany will soon fall into recession, the outcome of Brexit still unknown and the latest set of USA-imposed tariffs on Chinese goods kicking in from September 1. As a consequence, predicting what will happen to commodity prices is going to be increasingly difficult for the foreseeable future.
This is not likely to be something businesses will be happy to hear as it makes planning more risky.

Tags business stability, Cash flow, commodity prices, Investment

Banks, Lenders & Investors Business Development & Marketing Finance General

SMEs, start-ups and ethical fundraising

Post author By a.withers
Post date August 29, 2019
No Comments on SMEs, start-ups and ethical fundraising

Fund raising can be a challenge for SMEs and start-ups but there are signs that many are turning to ethical fundraising for their money.
This growing trend is particularly pronounced among younger business founders and entrepreneurs, many of whom are reportedly shunning the venture capital routes that focus primarily on forcing them to grow as fast as possible to generate returns.
With the issues of global warming, climate change and damage to the environment being a major factor among young people it is no surprise that ideas of sustainable growth and ethical sources of finance should be so appealing.
But are they narrowing their options by focusing on ethical fundraising and risking their prospects for growth and possibly their business survival?
It would seem not, according to analysts, as there is also a growing movement among investors, particularly retail investors, to search for investment opportunities specifically with ethical funds.
Lisa Ashford, chief executive of Ethex, says: “Venture capital funding can often be about financial performance and short term returns and exit strategies, sometimes to the detriment of the other impact aspirations of an organisation. That’s not what our investors are about.”
Ethex was started about ten years ago and works to match ethical businesses with investors that shared their values. It only works with businesses that have a clear social mission and those that conform to very high standards of governance and accountability.
The Guardian last year reported on the growing attraction of ethical investing, which its article argued was becoming more attractive to mainstream investment funds.
Nearly 80% of investors across 30 countries told last year’s Schroders’ Global Investor Study that sustainability had become more important to them over the last five years, increasingly seeing sustainability and profits as intertwined.
According to the website hi.co.uk the term ethical “is often used as a catch-all to describe funds managed with social, environmental, or other responsible criteria in mind”.
It says the main approaches of ethical funds are that they usually avoid companies that do harm to society and instead invest in those that have a positive social impact. But it warns investors to do their research diligently to ensure a fund is consistent with their own views.
From the perspective of the SMEs and start-ups ethical funds may actually benefit them through an alignment of culture, environmental awareness, social consciousness and ethics despite pursuing a strategy for slower growth. There is no reason to suppose such businesses cannot be sustainable, not least because of the opportunities for positive marketing messages that speak to their clients’ or customers’ own ethical concerns.

Tags Business Start-up, ethical fundraising

Banks, Lenders & Investors Business Development & Marketing Finance General

Post Brexit boom sectors – business opportunities

Post author By a.withers
Post date August 22, 2019
No Comments on Post Brexit boom sectors – business opportunities

It is often said that there are winners and losers for every significant event, so which are the post Brexit boom sectors likely to be?
Perhaps the most obvious ones are likely to come from the increase in regulation and compliance requirements for businesses, particularly those in the export sectors.
It is in this area, according to IW Capital, there are opportunities for companies that can devise technology to reduce the amount of time businesses will have to spend on complying with the inevitably more complex requirements that will be imposed by other countries within the EU, but also more widely as businesses explore markets they have perhaps not previously considered.
The exchange rate is likely to have the greatest impact on winners and losers. Therefore, firms that supply essential goods and services with UK supply chains whose costs are not affected by exchange rates and who do not rely on foreign labour ought to be huge beneficiaries, especially when their competitors rely on imports.
But there are other sectors where there will be lots of opportunities. News.co.uk also identifies tech start-ups where there are potential post Brexit boom opportunities, but it also suggests that there will be greater opportunities for exporters to non-EU countries thanks to the declining value of £Sterling compared to other currencies.
Another sector it highlights is medical technology, where the UK is a leading contributor, particularly among SMEs, which make up 85% of the sector and had a turnover of £70 billion in 2017.
The Spectator in a piece last autumn predicted that there will be opportunities for the UK’s smaller ports as logistics companies seek out and prioritise alternative, less congested routes.
Another example is the growing interest in CBD (cannabidiol). The Adam Smith Institute in July predicted that this medicinal product derived from cannabis has potential for sustained development in the UK after the Medicines & Healthcare Products Regulatory Authority (MHRA) re-classified CBD in the UK as a medicinal ingredient. No doubt the export market beckons.
Like the somewhat frivolous example above, there are opportunities for nimble SMEs to develop a strategy that takes advantage of Brexit.
There has been so much “doom and gloom” about the post-Brexit economy and supply chains in the last three years, and admittedly there will be some immediate disruption until new systems are in place.
In due course and only once the dust settles we will find out if Brexit benefits the country as a whole but in the disruption lie opportunities for SMEs to seize and create a Brexit advantage.

Tags Brexit boom, Business Development

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

The current state of the commercial property sector

Post author By a.withers
Post date August 13, 2019
No Comments on The current state of the commercial property sector

With economic uncertainty prevailing both globally and in the UK it would be no surprise if the commercial property sector was facing some difficulties.
The commercial property sector covers Community, Education, Hotel, Healthcare, Office, Retail and Industrial and it is clear from some of the statistics that the woes of retail have been acting as a drag on the sector as a whole.
Jones Lang LaSalle (JLL) provides information on property and investment opportunities and in its most recent analysis on new construction starts it revealed that they fell in the first quarter of 2019 for the first time since Q2 2017.
It reports that the ongoing uncertainty “dampened UK commercial real estate transactional activity in Q2, with investment volumes slowing to £8.9bn. This represented a 22% decline on the first half of and was the slowest first half of the year since 2013.
However, it reports, Alistair Meadows, Head of UK Capital Markets, believes that “Market fundamentals remain strong, with high levels of leasing, low vacancy rates and rental growth offering encouragement to investors. “
The Royal Institution of Chartered Surveyors (RICS) reports that in London demand for commercial property in London stayed in negative territory for the 12th quarter in a row and Capital Economics expects a weakness in investment activity is likely to extend into the rest of the year.
Aside from the obvious continuing uncertainty about the UK’s economic future outside the EU, the retail woes are likely to be a significant drag on commercial property. It is estimated that some 20% of retail landlords’ tenants are in significant financial difficulty, Many are insolvent and have embarked on restructuring via CVAs where insolvency is a prerequisite for doing a CVA. Furthermore there are indications that a lot of town centre retail space is no longer viable with landlords seeking planning permission for a change of use so property can be converted into residential units.
Finally, according to CBRE, the world’s largest commercial property services and investment company, most commercial property rents have been reducing in the first half of the year, declining by -0.2%, although it said the industrial sector was the best performing prime market, recording a capital value growth of 1.6% Quarter-on-Quarter, and a Year-on-Year of +6.8%.
One trend that may be significant in the future is the growing popularity of flexible tenancies and shorter leases rather than businesses owning and occupying large corporate buildings. This is already popular for renting for office space with Regus and WeWork growing rapidly but is likely to be used as a more flexible approach to renting light industrial and retail space.

Tags Commercial Property, Economic Uncertainty

Banks, Lenders & Investors Business Development & Marketing General

Dream Big – Summer is time for considering a start-up

Post author By a.withers
Post date August 8, 2019
No Comments on Dream Big – Summer is time for considering a start-up

As many as half of all workers seriously consider setting up their own business during the summer holiday according to research.
Emma Jones, founder of small business support network Enterprise Nation, said: “The combination of sun, sand, sea and downtime means we’re more relaxed and have time to contemplate what we want.”
Relaxing on a beach with time for reflection can make us aware of any dissatisfactions with our current status or job. It is also an opportunity to think what else you might do if stuck in a rut and you want to “take back control” of your life.
But what is involved when starting up a new business?
The key is to identify a clear purpose and define the product/market mix for your business, essentially to be able to answer “why” questions. This may require research but you cannot start planning until you have a clear purpose. Turning dreams into reality is more than simply having a good idea!
To help you find your purpose, here is the link to a TED Talk, ‘Finding your Why’ by Simon Sinek.

Find your Why before you go any further with your start-up

The core of Sinek’s argument is that all successful businesses have a belief in the core proposition which in turn inspires others.
In essence, he says, people buy into a product or service out of self-interest, and this is why the self-belief of the business’ founder is crucial to its success. This explains why sometimes even the best capitalised business with the most innovative products can fail, because they fail to convey a fundamental belief, or enthusiasm, for what they are doing.
This is not about money or fame and the most successful companies, such as Apple succeeded because their founders not only believed in what they were doing but were able to persuade others that buying into that belief would in some way enhance their own lives.
So, when you are thinking of starting up a new business this is central to whether it will succeed or fail.

When is the right time to launch?

It does not really matter when but you shouldn’t do so until you have identified your “Why”.
Of course, in preparing to launch you should do research such as trialling the idea most likely with test marketing slightly different products/services with slightly different markets/customers before settling on your core proposition. Once you know what will sell you can develop a plan that might be used to raise finance or simply be used as a discipline for following so you don’t get hijacked by others who come along with other ideas such as where to spend money on promotion initiatives.
Another key decision is what type of business, you should trade as, whether as a self-employed sole trader, as a limited liability company or as a partnership with others. Each has advantages and disadvantages which will inform your decision.
Other factors might be the state of the economy, industry or annual cycles, availability of finance, people and other resources or opportunity.
It might be counter intuitive but during a recession can be a good time to set up a business since established businesses often take their eye of their customers when they switch their focus to one of survival. This is particularly true for larger businesses since they are also less agile and often unable to cope with a changing market.
In summary there is no right or wrong time to turn your start-up dream into reality providing you are prepared.

Tags Business Development, start-up

Banks, Lenders & Investors Finance

The unpredictable relationship between currency values and stock markets – August Key Indicator

Post author By a.withers
Post date August 6, 2019
No Comments on The unpredictable relationship between currency values and stock markets – August Key Indicator

Too often the assumption is made that when a country’s currency value drops its stock markets will rise as its exports become more competitive.
The current economic situation in the UK and elsewhere is an illustration of why this may be an over-simplistic assumption.
Last week ended with £Sterling at its lowest value against the US dollar for two years at $1.2162 and against the Euro at €1.0948 while at the same time the FTSE100 closed down minus 2.34% at 7407.06.
This suggests that the previous so-called assumptions are no longer valid.
In commenting on this it should be noted that the European, US, Japanese and Hong Kong stock markets also plunged.

What is causing currency values and stock market turbulence?

The signs that both the global and UK economies are volatile and have been for some time. Evidence for this can be deduced from the monetary stimulus by Central Banks.
In May the OECD (Organisation for Economic Co-operation and Development) revised its growth forecast for the UK to 1.2% this year and 1% next year in the light of ongoing uncertainty about the future of the economy.
In June the WTO (World Trade Organisation warned that 20 new trade barriers imposed by G20 economies between mid-October and mid-May, threaten to increase uncertainty, lower investment and weaken trade growth.
By July, Moody’s, the credit rating agency, and Mark Carney, BoE (Bank of England) Governor were both warning that a new cold war in trade would have a deep effect on the world economy.
Moody’s was also predicting a recession in the UK if it crashed out of the EU without a deal in October. It followed up later in the month that this was now more likely following the outcome of the Conservative leadership contest, which resulted in a new Prime Minister, Boris Johnson.
So, what actually influences currency values? The BBC has a helpful guide to the factors that can play a part:
* Economy: Strong economies have strong currencies because other countries want to invest there;
* Savings: When UK banks raise interest rates, holding savings or investments in pounds becomes more attractive;
* Prices: If UK goods are cheaper than those abroad, they will be attractive to foreign customers who buy Sterling to purchase them. This in turn increases the exchange rate;
* Public finances: The state of a government’s bank balance, or how much debt it has, can also affect the exchange rate;
* Speculation: The exchange rate is highly vulnerable to currency speculators, who buy and sell Sterling or who bet on currency movements based on their view of future events.
And how does currency value influence stock markets? A 2017 article in City AM argued that the strength of a country’s currency can have a surprisingly large bearing.
It argued that after President Trump was elected in the US, the S&P 500, the benchmark US share index, rose 10% to new all-time highs in the month following and cited the US dollar, which gained 3% during the same period as a key driver.
By comparison, after the 2016 Brexit referendum in the UK Sterling tumbled while the FTSE 100 rose sharply. In the three months following Brexit, the index rose 10.4%, largely, it argued, because the majority of FTSE 100 companies receive their revenues in foreign currency.
So what is different now to have caused both Sterling and the FTSE 100 to drop simultaneously? Arguably against a backdrop of slowing global trade and Brexit uncertainty a significant impact has been the ongoing trade war between the US and China.
The latest move has been a decision by Donald Trump to impose new tariffs on a further $300bn of Chinese imports in addition to those already in place.
Clearly, in such a volatile situation all the old “assumptions” about currency values and market behaviour are called into question and businesses and investors may need to review the basis on which they make decisions!

Tags currency values, stock markets

Banks, Lenders & Investors Finance Insolvency Turnaround

Q2 insolvencies offer no sign of economic storms easing

Post author By a.withers
Post date August 1, 2019
No Comments on Q2 insolvencies offer no sign of economic storms easing

There are no signs of the pressures on businesses easing off as insolvencies in the second quarter of 2019 (April to June) continued to climb, according to the latest figures released by the Insolvency Service.
While the number of compulsory insolvencies fell, there was a significant increase in the number of CVLs (Company Voluntary Liquidations), which showed a 6.9% increase, an increase of 2.6% in the total numbers of insolvencies compared to the first quarter of the year.
Compared to the same quarter in 2018 the numbers of insolvencies have risen by 11.9%, the highest underlying rate of insolvencies since 2014 according to the Insolvency Service.
It reports that those businesses that have fared worst in the second quarter have been “the accommodation and food service industry with 74 extra cases compared to the 12 months ending Q1 2019 (an increase of 3.4%) and the construction industry with 37 additional insolvencies (a 1.2% increase)”.
The latest Red Flag Alert for the second quarter of 2019 from Begbies Traynor also emphasises an increase in businesses in “significant distress”, to 14% of all UK businesses while the average debt of insolvent companies has more than doubled – from £29,873 in 2016 to £66,226, it says.
Set this against a backdrop of a weakening global economy, as reported by the World Bank in June, in part thanks to business uncertainty because of international trade tensions.
In the UK context, the future for the economy remains completely unknown given the new Prime Minister’s Brexit strategy. This is evident from the factory output figures for July that reported the lowest levels for six years, slowing consumer borrowing, and this week the value of the £Sterling dropping to its lowest level for two years.
While low exchange rates may be a positive for UK businesses involved in exporting, making exported goods and services cheaper, they will also add to business costs on any supplies and materials imported from outside the country where the net result is that we are worse off given the UK trade deficit which was £30.8 billion in the 12 months to April 2018. Another factor is consumers who are continuing to spend but may prefer to stay at home instead of having more expensive holidays abroad.
Given also the ominous noises about continued UK-based car manufacture, most recently from Ellesmere Port, depending on the post Brexit conditions here, not to mention the continued carnage in High Street retail, more people will also be worrying about their future job security.
It would be great to be able to say that the end is in sight but sadly, with so many “known unknowns” the economic weather outlook has to remain stormy.

Tags economic storms, Insolvencies

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance Turnaround

Can fashion retail ever be made sustainable?

Post author By a.withers
Post date July 25, 2019
No Comments on Can fashion retail ever be made sustainable?

It is no secret that High Street retail has been in dire straits for some time, and clothing and fashion retail have particularly suffered.
The most recent, and perhaps most high-profile example has been the struggles of Philip Green’s Arcadia Group, comprising the clothing chains Topshop, Topman, Evans, Wallis, Miss Selfridge, Burton and Dorothy Perkins, to use CVAs as a way of restructuring.
But it is not only physical fashion retail stores that are struggling. ASOS has recently issued its second profit warning in seven months, albeit blaming IT chaos in its overseas warehouses despite overall sales being up 12% in the four months to 30th June.
Obviously, cheap prices and turning around lines quickly, have been the two main things on which fashion retail has been relying. As a consequence, clothes are often made by low-paid workers in appalling conditions, in factories located in countries like Bangladesh.
However, for some years there have been demands from consumers for such workers to be paid fairly and treated better following revelations about their working conditions.
That did not, however, mean that consumers were prepared to pay more for their clothes or necessarily to wear them for longer.
Marketing plays a big part in this kind of consumer environment by encouraging shoppers to “be ahead”, “get the newest” and stay “on trend” in order to encourage them to buy and to do so often and repeatedly.
But as I said in my blog on Tuesday, corporate survival is coming increasingly dependant on a variety of demonstrably ethical behaviours, including protecting the environment and treating employees fairly.
It may be that we have reached a critical moment where the zeitgeist among consumers is changing in a way that is focussing fashion retail on the need to change its business model by marketing its ethical and sustainable credentials.

What would sustainability mean in fashion retail?

Clearly, a recent initiative by Boohoo.com highlighted its ‘new’ sustainable credentials by the launch of its range of “recycled” clothes.
The collection, the company says, has been manufactured entirely in the UK to cut air pollution and its garments are made from recycled polyester, with no environmentally unfriendly dyes or chemicals being used.
It is not yet clear if this is marketing puff or a shift in values as the launch has been greeted with some scepticism, according to an article on the BBC news website.
It may be a start but the EAC (Environmental Audit Committee) argues that it doesn’t address other issues with clothing, including the fact that synthetic fabrics used to make such garments shed micro-fibres when washed, polluting waterways or that even those that are disposed of through retailer take-back schemes or in charity collection bins will eventually find their way into landfill.
The Independent recently reported that fashion retailer Net-a-Porter plans to launch a new platform, Net Sustain, to highlight brands meeting certain criteria regarding sustainability. Attributes will include “Locally Made”, when at least 50% of a brand’s products have been manufactured within their own community or country, and “Craft & Community”, where products showcase exceptional, artisanal skills. The platform will launch with 26 brands and 500 products.
However, other pressures are also having an influence, not least all the publicity about plastic waste littering the world’s oceans and land, which it has been argued is not helped by the rise in online shopping where packages generally use plastic materials.
Fair pay for overseas garment workers and the use of sustainably grown fibres, such as cotton are also factors.
Another is the popularity of new initiatives such as the decluttering movement started by Marie Kondo who has been encouraging us to hoard less “stuff”, or the Tiny House movement that is encouraging us to use less space.
One company in Suffolk has been in the forefront of fair trade and environmentally sustainable clothing production for five years.
Where Does it Come From, operates in both India and in Africa and offers a complete history of its manufacture with each garment. It has to be said their range is not as cheap as perhaps the fast-turnaround online and high street fashion retail can produce but its ethical, environmental and sustainability credentials are impeccable.
And this is perhaps the main issue for fashion retail, promoting their values as evidenced by their actions rather than by their marketing. Will consumers be willing to pay more and buy less frequently to satisfy their concerns?
The Suffolk business has clearly been able to survive and has some extremely loyal customers but whether its model can work in the mass fashion retail market remains to be seen.

Tags fashion retail, sustinability

Banks, Lenders & Investors Business Development & Marketing

Long term corporate survival can only be achieved by having the right values

Post author By a.withers
Post date July 23, 2019
No Comments on Long term corporate survival can only be achieved by having the right values

There are signs that the Gordon Gekko culture of “greed is good” is dying and that corporate survival will depend on not only giving customers what they want but also being seen to have and act on a wide range of ethical values and behaviours.
In an environment of high employment and significant skill shortages in many sectors, the bargaining power of millennials and Generation X will only strengthen as the older generation of employees retires.
Equally, the power of consumers and customers choosing who to buy from is having a greater impact on corporates’ processes and practices.
In this context, CSR (Corporate Social Responsibility) policies will no longer be enough. Too many of them have been unmasked as marketing and PR exercises among the larger corporations and of little practical substance. SMEs often fare better, however, being closer to their localities and customer base, where their greater visibility puts them under pressure to be more accountable.
However, movements like Extinction Rebellion, highlighting the urgency of acting on environmental damage, as well as greater publicity about the treatment of whistleblowers who have unmasked the less than ethical behaviours of their employers (eg the Cambridge Analytica scandal), often at great cost to themselves, have focused attention on better ways of assessing corporate behaviour.
To address these concerns, ESG (Environmental, Social and Governance) is becoming more and more popular as way of assessing Sustainable Investment.
ESG incorporates measurements of how businesses respond to climate change, treat their workers, build trust and foster innovation and manage their supply chains. ESG is also becoming a key marker for investors decisions, according to a blog by npower, which claims that “a quarter of the world’s professionally-managed investment funds now only invest in companies that demonstrate solid ESG credentials”.
It quotes Nigel Topping, the head of the We Mean Business coalition of 889 companies with $17.6trn in market capitalisation: “If these challenges are tucked away and approached solely for compliance reasons, they are not being integrated. And if businesses aren’t incorporating them into financial decisions and long-term planning, then they are not being taken seriously – which leaves the business poorly prepared for the future.”
Businesses can adopt a process of continuous improvement on their energy efficiency, for example, by adopting the globally-recognised ISO 50001 standard, which can be verified and used to reassure customers, clients and investors.

Employee and consumer pressure means incorporating ethics for corporate survival

Investor, employee and consumer pressure is mounting for companies to incorporate the values that will help ensure corporate survival, despite some being at the expense of short term profits. This is somewhat at odds with many senior executives whose focus has been on reporting profits. The focus on profits has been understandable since they underpin most reward structures but this will need to change as ESG gains acceptance.
There are many recent examples of changes to corporate behaviour as a result of consumer pressure, most notably this year’s focus on plastic waste and environmental pollution.
Not surprisingly, the superstores and hospitality industries have been in the forefront. McDonalds has committed to completing a roll-out of bringing in paper straws in all its outlets by the end of the year.
Waitrose removed all its plastic straws from sale last year and has promised to reduce plastic whenever possible, while Iceland aims to be “plastic-free” by 2023.
Single-use plastic carrier bags are no longer to be had in virtually all the superstore chains and both Morrisons and Sainsbury are rolling out plastic-free fruit and veg areas across their stores.
But ethical behaviour is not focused solely on environmental concerns.
Just a few days ago the Chartered Institute of Credit Management (CICM) suspended another 18 businesses from the Prompt Payment Code for failing to pay 95% of all supplier invoices within 60 days. They included Screwfix, Galliford Try, and Severfield.
Employees and potential employees are also becoming more discriminating.
Research in the USA has revealed that:
* 75 percent of millennials would take a pay cut to work for a socially responsible company.
* 76 percent of millennials consider a company’s social and environmental commitments before deciding where to work.
* 64 percent of millennials won’t take a job if a potential employer doesn’t have strong corporate responsibility practices.
PriceWaterhouseCooper has also studied the millennial generation and found that “corporate social values become more important to millennials when choosing an employer once their basic needs, like adequate pay and working conditions, are met”. Their report concluded that “millennials want their work to have a purpose, to contribute something to the world and they want to be proud of their employer.”
There are moves afoot from the Government, too, to strengthen protection for those who discover unethical, or unlawful, behaviour in their workplaces and become “whistleblowers”.
Business minister Kelly Tolhurst has announced proposed new laws to ban the use of NDAs (non-disclosure agreements) that stop people disclosing information about their employer to the police, doctors or lawyers.
There remains the issue of excessive corporate executive remuneration to tackle. While there has been a significant increase in the numbers of shareholders who have questioned CEO and director level remuneration, so far, the High Pay Centre has found that every single vote at a FTSE 100 firm was approved between 2014 and 2018.
Clearly there is some way to go before the adoption of ESG by corporates becomes the norm, but the momentum is there and businesses should pay heed as their corporate survival will increasingly depend on it.

Tags business ethics, corporate survival

Banks, Lenders & Investors Business Development & Marketing General Turnaround

What are the prospects for UK manufacturing?

Post author By a.withers
Post date July 18, 2019
No Comments on What are the prospects for UK manufacturing?

UK manufacturing output growth held steady in the three months to May, according to the Confederation for British Industry’s (CBI) monthly industrial trends survey.
In July, the CBI reported that in the three months to June UK factory output had turned in its slowest quarterly growth since April 2016.
Furthermore, the CBI reported that ten out of sixteen sub-sectors experienced growth with chemicals, food, drink and tobacco being resilient, while car manufacturing struggled.
Confusingly the CBI also reported that order books deteriorated in the quarter.
By comparison the monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed that activity levels in the UK manufacturing sector in June had dropped to the lowest level since February 2013.
IHS Markit/Cips found that high stock levels, ongoing Brexit uncertainty, a deteriorating economic backdrop and rising competition contributed to the drop in output. Weak export demand amid a faltering global economy also had an impact.
These figures, while confusing, support the hypothesis that UK manufacturing prepared itself for Brexit in March by building up stock levels and in doing so increased output. However, since then much of this productivity has been ratcheted back.
So where are we?

What is the true state of UK manufacturing?

The publisher, The Manufacturer, takes an up-beat view.
It argues that “Contrary to widespread perceptions, UK manufacturing is thriving, with the UK currently the world’s eighth largest industrial nation. If current growth trends continue, the UK will break into the top five by 2021.”
In their annual manufacturing report for 2019 they argue that there is a “surprisingly resilient mood among manufacturers with 81% saying they are ready to invest in new digital technologies to boost productivity.
But they do not deny there are challenges.
Of course, Brexit and ongoing uncertainty, is having an effect on strategic-planning and business prospects with 51% arguing that the Government should be doing more to promote exports, especially given the currently favourable exchange rates from an export perspective.
Among the challenges the 2019 survey identifies for UK manufacturing is the need for a clear strategy and strong leadership when introducing smart technology into the processes, citing lack of coherent digital strategies and in some cases an inability to understand the practical applications that technology can offer.
Another issue is the lack of skilled engineers. Some respondents argue that the education system and the Government’s approach are both failing. The survey reports that some companies are now establishing their own training schemes and academies because the situation is so bad.
However, I would argue that while the mainstream education system undoubtedly plays a big part, there is actually no reason why businesses should not be doing so as well. After all, they are in the best position to know precisely what skills they need in a way that schools and colleges perhaps cannot.
On exporting, there were some in the survey that argued that Brexit might be a good thing in stimulating more UK manufacturing rather than being locked into and dependent on complex transnational supply chains.
One manufacturer in Cheshire is reported as saying in a Guardian article in June this year: “We are under the threat of closure all the time.”
But the article goes on to describe how this particular manufacturer is fighting back: “If we didn’t have a drive on productivity we wouldn’t be in business.”
Their solution has been to drive forward with robotic technology and with the support for their proposed changes from their workers. They have involved everyone in the process, mocking up robotic workstations in cardboard to see how they fit in with the workforce, with the result that “while robots have replaced some jobs new ones have come and staff have been trained up along the way”.
All this is without considering the opportunities for completely new businesses that will arise from the growing drive to clean up the environment and make activity more sustainable which will no doubt create opportunities among the more innovative producers for new processes and ways of doing things.
Perhaps we should not write the obituary for UK manufacturing quite yet.

Tags business innovation, UK manufacturing

Banks, Lenders & Investors Finance HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Proposed HMRC preferential status a blow to financing and restructuring

Post author By a.withers
Post date July 16, 2019
1 Comment on Proposed HMRC preferential status a blow to financing and restructuring

The Government last week published its new draft Finance Bill, which includes the proposal to restore HMRC preferential status as a creditor for distribution in insolvency. This was originally granted in the Insolvency Act 1986 but removed by the Enterprise Act 2002.
In summary, HMRC is currently an unsecured creditor ranking equally with suppliers as trade creditors and unsecured lenders for any pay-out to creditors from an insolvent company. The preference would mean they get paid ahead of unsecured creditors leaving less or nothing for most creditors whose support is necessary when restructuring a company.
There had already been considerable consternation expressed by insolvency practitioners and investors after Chancellor Philip Hammond announced the proposal in the Spring, but it seems the Government has decided to press on making only a light amendment to the effect that preferential status will not apply to insolvency proceedings commenced before 6 April 2020.
The change in HMRC to preferential status will apply to VAT and PAYE including taxes or amounts due to HMRC paid by employees or customers through a deduction by the business for example from wages or prices charged such as PAYE (including student loan repayments), Employee NICs and Construction Industry Scheme deductions.
It will remain an unsecured creditor for other taxes such as corporation tax and employer NIC contributions.
The consultation period for the Bill ends on 5 September 2019 and, not surprisingly, there have already been criticisms of the HMRC preferential status element of the bill, not least as reported in the National Law Review:
“Unfortunately for businesses and lenders, this does not address real concern about the impact of this change on existing facilities and future lending,” it says.
It points out that preferential debts are paid after fixed charges and the expenses of the insolvency but before those lenders holding floating charges and all other unsecured creditors.
Accountancy Age also reports on reactions from the Insolvency trade body R3’s president Duncan Swift, who described the Bill’s publication as “shooting first and asking questions later”.
He said: “This increases the risks of trading, lending and investing, and could harm access to finance, especially for SMEs. This means less money is available to fund business growth and business rescue, and, in the long term, could mean less tax income for HMRC from rescued or growing businesses. It’s a self-defeating policy.”
The article also includes comments from Andrew Tate, partner and head of restructuring at Kreston Reeves: “The introduction of this in April 2020 will be interesting,” said Kreston Reeves’ Tate. “The banks will have to change the criteria on which they base their lending to businesses in the light of this new threat, but will they also reassess the amounts they have lent to existing customers?

Is HMRC preferential status the death knell for CVAs?

CVAs (Company Voluntary Arrangements) have traditionally been the route whereby unsecured creditors could have some say, and receive an enhanced pay-out, when a business becomes insolvent and seeks to restructure its balance sheet in order to carry on trading and manage its debts.
Instigated by the directors, approval of a CVA requires 75% of unsecured creditors where the payment terms are binding on any dissenting creditors providing they are less than 25%. Generally, the earlier a business enters a CVA the better, although they can be used as a means of dealing with a minority creditor who has lodged a Winding Up Petition (WUP) in the courts.
CVAs generally involve a payment to creditors which must be distributed by creditor ranking where currently HMRC gets paid the same as trade creditors but under the proposals HMRC will be paid first, leaving considerably less for trade creditors whose support is needed as ongoing suppliers.
CVAs have been a valuable insolvency tool for saving struggling retailers, most recently Monsoon/Accessories, Arcadia (owned by Philip Green) and earlier Debenhams, Mothercare, Carpetright and New Look.
But there have been signs of creditors’ disenchantment with the CVA mechanism when used for retail chains, notably from landlords, who stand to lose significant revenue if they agree to reduce their rents as part of the CVA agreement.
Arcadia, in particular, struggled to reach agreement when landlord Intu, owner of several large shopping arcades, said it was not prepared to accept rent cuts averaging 40% across Arcadia Group shops in its centres. In the end the deal was agreed after landlords were promised a share of the profits during the CVA period. This is an example of the flexibility of CVAs and of how they can benefit creditors if a business is to be saved.
It is a dilemma for landlords in particular, but on the whole they seem to have come to the view that some revenue going forwards is better than none, given that there is reducing demand for High Street Retail space not least because of the sky-high business rates and dwindling footfall from shoppers.
However, it is very likely, in my view, that this latest move by the Government to restore HMRC preferential status, could just tip the balance in making the CVA ineffective as a restructuring tool since the lion’s share of available money will be paid to HMRC.

Tags business finance, CVAs, HMRC preferential status

Banks, Lenders & Investors Business Development & Marketing Finance General

The UK Film Industry – sector focus for July

Post author By a.withers
Post date July 9, 2019
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It’s good to write about a UK business success story, the UK film industry, which has become an important economic sector having grown faster than much of the UK economy.
According to the DCMS (Department for Digital, Media, Culture and Sport) in November 2018 the value of the creative industries as a whole to the UK was up from £94.8 billion in 2016 and had broken through the £100 billion barrier. It said the sectors had grown at nearly twice the rate of the economy since 2010 and together are now worth £268 billion.
For the film world specifically not only does the UK have a widespread and skilled support base of experienced film production crews and technicians, it also has both the locations and the studios to attract the biggest film companies from around the world. It is an industry that employs an estimated 60,000 people.
Then there is the knock-on effect into the wider local economy, not only by boosting the tourism sector, but also in some other surprising ways. We know of one Essex-based haulier who reports consistent and increasing contracts for transporting materials, equipment and support units to film locations as well as to studios like Shepperton and Pinewood.
Last week, Netflix announced what is believed to be a 10-year deal to lease Shepperton Film Studios near London, where it plans to create a dedicated UK production hub, including 14 sound stages, plus workshops and office space at the site owned by the Pinewood Group.
Another recent example is the newly-released Danny Boyle/Richard Curtis film ‘Yesterday’, filmed almost entirely in Suffolk, Norfolk and Essex.
These are only the latest results of an ongoing investment in the UK film industry, which has been stimulated by Government tax breaks and local authority initiatives that have encouraged spending by international filmmakers.
According to figures from the BFI (British Film Institute) 2017 saw the highest level of spend by international filmmakers ever recorded, reaching £1.692 billion.
But the success of the UK film industry has not only been about attracting international film makers. Production of home grown films in 2017 had also risen, with 72 films going into production including ‘Mary Queen of Scots’ directed by Josie Rourke; ‘Yardie’ directed by Idris Elba, ‘Peterloo’ directed by Mike Leigh; ‘Close’ directed by Vicky Jewson; and ‘The Boy Who Harnessed the Wind’ directed by Chiwetel Ejiofor.
UK cinema revenues have also grown, reaching £1.3 billion (totaling 170.6 million admissions) that same year.
According to the ONS (Office for National Statistics) the gross value added to the economy by film, video and television companies has increased by 313 percent since 2008.

Tags business success, UK film industry

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Redefining measures of national economic health – July Key Indicator

Post author By a.withers
Post date July 2, 2019
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For almost 40 years the defining measure of a country’s national economic health has been GDP (Gross Domestic Product).
As such, my monthly Key Indicators have focused on various specific aspects, such as oil prices, factory output or investment decisions and the like. This time, however, given that the summer is generally a time to pause and reflect, the Key Indicator considers this notion of how we measure national economic health.
There are signs of a growing resistance to using such a simplistic measure as GDP to compare the relative success of national economies.
For example, Evan Davies, the BBC’s former economics editor argues: “It is barely an exaggeration to say it has been fetishised in economics, despite obvious weaknesses in its capacity to encapsulate a whole economy in a single number” in an article analysing where economists have been going wrong.
National economies are, he argues, both too complex and too theoretically based on mathematical models.
This is a theme also in the work of Joseph Stiglitz, Nobel laureate in economics, a professor at Columbia University and chief economist at the Roosevelt Institute, who, in asking what kind of economic system is most conducive to human wellbeing, has for some years argued that “The neoliberal experiment – lower taxes on the rich, deregulation of labour and product markets, financialisaton, and globalisation – has been a spectacular failure”.
The key word is “wellbeing”.
In 1972, Bhutan became the first country to change its method of assessing the country’s national economic health and performance to a more holistic method of assessing progress based not only on its economic performance but also on Gross National Happiness (GNH). The then King Jigme Singye Wangchuck argued that for sustainable development both should be measured.
Bhutan’s GNH includes psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards.
In May this year, New Zealand released its first-ever “wellbeing budget”. According to the country’s Prime Minister Jacinda Ardern, the purpose of government spending is to ensure citizens’ health and life satisfaction, and this should be how a country’s progress is measured, not by GDP alone.

Is UK about to follow suit in changing how it measures national economic health?

Just last week it was revealed that in the last three years the numbers of people employed in the “gig” economy had doubled to 4.7 million people, meaning that one in 10 people now works in insecure employment with all the worries this brings about having sufficient – and regular – income to pay the rent, the mortgage, living expenses and so on. The lack of security and lack of welfare support is a real problem for those without savings who live pay cheque to pay cheque.
It has been no secret for some time that income inequality has been rising massively, manufacturing in some parts of the country has been decimated (as covered in my recent macroeconomic update). Arguably this has led to the rise in nationalist and populist movements as demonstrated by the massive national division that was the result of the 2016 referendum to leave the EU.
This is without taking into account the impact of current thinking on the urgency of tackling climate change and environmental damage and moving towards a more sustainable economy.
Clearly, therefore, current circumstances are concentrating some politicians’ and economists’ minds.
In early June, MPs on the All-Party Parliamentary Group (APPG) also backed a proposal to widen measures of UK’s growth performance beyond GDP. Measures of national economic health should take into account other indicators of economic progress, such as consumption, inequality, leisure time, unemployment and life expectancy, it is argued.
The backing followed publication of the first part of a study by the Centre for Progressive Policy (CPP), commissioned by the APPG.
Is all this the start of an unstoppable movement that will have us all rethinking how we asses national economic health? Only time will tell, but why don’t you join the debate and post your own thoughts about what indicators should be included in the assessment?

Tags GDP, national economic performance

Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

June macroeconomic snapshot of UK regional economic inequality

Post author By a.withers
Post date June 27, 2019
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We hear a lot about UK regional economic inequality, so as part of our series of macroeconomic snapshots we’re taking a look at some of the data.
These are just a few examples of recent announcements of businesses facing closure or insolvency in the immediate or near term: British Steel, Scunthorpe (c.3,000 jobs), Honda UK, Swindon (3,500 jobs), Kerry Foods in Burton-upon-Trent (900 jobs). What they all have in common is that they are situated in the regions outside London.
Then, of course, there is the ongoing carnage in the High Street retail sector which according to the British Retail Consortium’s calculations has cost 75,000 jobs since the first quarter of 2018.
The long decline in UK manufacturing, initiated in the 1980s Thatcher era, has hit the regions of the north and Midlands, and S. Wales, particularly hard.
In January this year NIESR (National Institute for Economic and Social Research) calculated that since the mid-1990s regions that now have reduced shares of the national economic pie are the North West (-1.8%), West Midlands (-1.4%), Yorkshire and the Humberside (-0.8%), and the North (-0.4%).
The ONS (Office for National Statistics) list of the top 10 most deprived UK towns and cities are Oldham, West Bromwich, Liverpool, Walsall, Birmingham, Nottingham, Middlesbrough, Salford, Birkenhead and Rochdale. In their most recent report, they took into consideration metrics like low incomes, levels of employment, health, education and crime.
By contrast, real output rose twice as fast in London as in other regions over the 10 years to 2017. The “the Golden Triangle of London, Cambridge and Oxford that attracts over half of all research funding – more than £17bn” while just £0.6bn goes to the north east, according to Newcastle on Tyne MP (Lab) Chi Onwurah.
Also, according to the 2019 Global Cities report released today by consultancy firm A.T. Kearney, London has been ranked as the top city in the world for future business investment.
Of course, none of this disparity is a revelation. The 2010-15 Conservative/Liberal Democrat coalition prioritised cutting public spending in the short term over all other objectives, including regional equality and long-term social cohesion. One of their first acts was to abolish the regional development agencies. But in 2014 the then chancellor, George Osborne coined the phrase Northern Powerhouse, a recognition, and arguably a u-turn, that action was needed on UK regional economic disparity.
There is some evidence that the north’s economy has strong foundations, with productivity growing at a faster rate than in London between 2014 and 2017 and jobs being created at a greater rate than the UK average.
According to new report from TheCityUK, the trade body says the number of people employed in the financial services sector in Wales has jumped by over 20%, about 11,000 people. There has also been a 10,000 rise in the West Midlands, 12,000 in the East of England, and 24,000 in Yorkshire and Humber. Conversely, the number of financial workers in London has dropped by 10,000 since 2016, and by 32,000 across the South East of England.
However, with a £3.6bn cut in public spending in the north of England since 2009/10 and 37,000 fewer public sector workers, there is also evidence, reinforced by IPPR figures in May, that the Northern Powerhouse has been “undermined” by austerity, with power and resources “hoarded in Westminster.”
There is clearly a long way to go before the UK’s regional economic disparities are anywhere near to being reduced.

Tags business stability, UK regional economic inequality

Banks, Lenders & Investors Finance Uncategorized

Key Indicator – investment decisions in a mature business cycle

Post author By a.withers
Post date June 4, 2019
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21st century city setting for mature business cycle

A mature business cycle is one where the prevailing conditions are such that any economic slack is largely used up and assets are richly priced after a period of expansion.

Arguably this is the position in which the economies of the developed countries, such as the USA, UK, EU and Japan now find themselves, where there is a stable population and slowing economic growth. In this context a growth rate of 2% is seen as acceptable.

Arguably, too, mature economies are at a pivotal moment, in that a market economy is never static and there have been signs for some time that the situation is somewhat volatile, as a selection of headlines in any period illustrates.

For example, on April 28 a new report on global trends published by KPMG Enterprise suggested that increased activity from venture capital investors had been pushing up deal prices in the North of England, and the billionaire investor Warren Buffett told the Financial Times that he is “ready to buy something in the UK tomorrow” regardless of Brexit.

A month later, a member of the Bank of England’s MPC (Monetary Policy Committee) was reported in The Times as saying that “levels of business investment in Britain could be stronger than they appear, because official measures underestimate spending on intangible assets”.

Within days of the collapse of British Steel in Scunthorpe into administration there were reportedly 80 potential buyers for the business.

All this seems positive but at the same time there are equal numbers of less positive headlines suggesting a global economic slowdown, rising prices and inflation in some countries and worries about an imminent recession being due at this point in the economic cycle.

According to a recent article in the Economist on the mature business cycle, markets are choppier, perhaps due to the latest developments in the on-going trade war between the US and China, and it would be wise, it says, for investors to watch what happens in the foreign-exchange market where, it argues, the dollar is “a thermostat for global risk appetite: it rises with a weak dollar and falls with a strong one”.

Clearly, for investors, especially those that are rent seekers or seeking quick returns on their money, the current volatile economic situation is hardly welcome. Questions arise about where it is safer to put money and it is hardly a surprise that commodities such as oil (see last month’s Key Indicator) are seeing significant price rises.

Tags mature business cycle

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

What should be on the SME wish list from the new Bank of England governor?

Post author By a.withers
Post date May 23, 2019
No Comments on What should be on the SME wish list from the new Bank of England governor?

The search has begun for a replacement for Mark Carney, Bank of England (BoE) governor, who is due to leave his post in January 2020.

So far, the speculated names in the frame have included Andrew Bailey, the chief executive of the Financial Conduct Authority, seen as a “safe pair of hands”, Ben Broadbent, the Bank’s deputy governor for monetary policy and Andy Haldane, the Bank’s chief economist.

But also included have been Shriti Vadera, chair of Santander, Janet Yellen, former head of the US Federal Reserve, and Raghuram Rajan, economist, and former head of the Indian Central Bank.

Chancellor Philip Hammond has reportedly said that Mark Carney’s “steady hand has helped steer the UK economy through a challenging period”.

In the light of the ongoing turmoil that is a still-not-finalised Brexit, political populist turmoil and US-inspired trade wars with China and potentially the EU, clearly another “steady pair of hands” at the BoE is needed, as well as someone who may have to deal with a government that wishes to take back much of the power that was handed over by Gordon Brown when he was Chancellor.

Beyond a steady hand what qualities might SMEs like to see in a Bank of England governor?

The BoE headhunting will be carried out by Sapphire Partners, a head-hunting firm that specialises in diversity and placing women in top roles. The company is run by an all-female management team.

While they will obviously be seeking the best candidate for the job this could be an encouraging sign for many, given the various ongoing headlines about the difficulties women entrepreneurs have in being taken seriously and accessing finance as I have reported in past blogs.

At the time of Carney’s appointment in 2013 it was revealed that loans to SME fell by £4.4bn in the three spring months. Since then the signs have been that the main banks have continued their reluctance to lend to SMEs, so perhaps a signal of SME support from the new Bank of England Governor would be welcome.

To be fair, Carney and the Monetary Policy Committee have resisted the temptation to raise interest rates, which has been a huge benefit to many SMEs, particularly in the current turbulent economic climate. This has been welcomed by FSB (Federation of Small Businesses National Chairman) Mike Cherry.

In an interview published on the Government’s website in February this year, Mark Carney referred to the BoE’s upgrade of its RTGS [real-time gross settlement] system to take advantage of new technology to “not only lower the cost and increase the speed of payments, but has the potential to be transformative beyond the financial sector” and he said would benefit SMEs.

He also said “These benefits would multiply if delivered alongside services trade liberalisation, which has the potential to increase productivity growth, reduce excess imbalances, and make free trade work for all, including SMEs.”

So clearly he has been mindful of the considerations for SMEs, but what else would you like to see from the new Bank of England governor?

Leave your suggestions in the comments section below.

Tags Bank of England

Banks, Lenders & Investors Finance Insolvency Uncategorized

Are Internet unicorns another bubble destined to burst?

Post author By a.withers
Post date May 21, 2019
1 Comment on Are Internet unicorns another bubble destined to burst?

Reminiscent of the hubris leading up to the 2000 dot com crash, the start of this year there has seen a queue of internet unicorns lining up to launch on the stock market via Initial Public Offerings (IPOs).

A unicorn business is defined as a private, venture capital-backed firm worth over $1bn. Among those that have either launched IPOs or considering them are Lyft (launched in March), Uber (launched in early May), Pinterest, AirBnB and possibly We Work and Slack.

So far, the results have been distinctly underwhelming with Lyft’s shares valued at $72 each on debut, giving the seven year-old company and rival to Uber a market value of slightly more than $24bn.

Uber set its launch value at $90 billion (£70 billion) and listed share prices at $45 each. However, within hours on its first day of trading Uber’s share value had dropped by 7.6% down to $41.51.

Neither of the two ride-hailing businesses has so far ever made a profit.

Last year, despite boasting revenues of $11bn Uber made operating losses of $3bn and while its revenues grew from $343m to $2.1bn between 2016 and 2018, its losses also soared, from $682m to $911m.

The hubris might best be justified by the fact that We Work was valued at ~$20bn at last fundraising, despite last year losing ~$4bn. Contrast this with UK listed Regus that made ~€800m last year and is currently valued at ~$4bn.

There is no doubt that trading conditions in the last two years have been challenging, with a global economic downturn, trade wars and political populist movements all making markets more volatile.

This may be behind the incentive for unicorns to rush into IPOs before economies find themselves in recession. Again, readers might like to recall the market bubble ahead of the dot com crash in 2000 when Lastminute.com was the last of old “retail” internet firms to list before the crash with many of those who missed the boat subsequently falling by the wayside.

Are there more deep-seated problems with internet unicorns?

Ilya Strebulaev, professor of finance at Stanford University, has extensively researched private venture capital backed companies and come to the conclusion that unicorns are overvalued by about 50%.

Prof Strebulaev argues that typically venture capital-backed businesses make losses “because they basically sacrifice profits to achieve very high growth or scale” but the question is whether their business models will be sufficiently flexible to allow them to convert losses to profits over time.

The current crop of internet unicorns are significantly larger than the internet companies that were involved in the mid-1990s dot com bubble and 2000 crash but a lot depends on their plans for the future.

Lyft has plans for using the money generated from its IPO to invest in acquisitions and technology, including autonomous driving, for example.

Uber has already suffered from protests by its drivers over their treatment with stories rife of drivers earning so little that they have to sleep in their vehicles and with protests ongoing there are concerns that it would face significantly increased costs if forced by regulators to classify drivers as employees rather than contractors.

An item in its IPO prospectus is particularly telling “as we aim to reduce driver incentives to improve our financial performance, we expect driver dissatisfaction will generally increase.”

If these companies are pinning their hopes of future profitability on driverless cars and dispensing with drivers altogether they, and their investors may have a long wait.

Tags dot com bubble, internet unicorn, investors

Banks, Lenders & Investors Business Development & Marketing Finance General

Business opportunities for SMEs in the growing demand for sustainability and cutting waste

Post author By a.withers
Post date May 16, 2019
No Comments on Business opportunities for SMEs in the growing demand for sustainability and cutting waste

The neoliberal economic model based on perpetual growth has come under increasing attack from environmental campaigners particularly since the week-long Extinction Rebellion activity in April this year.
With almost-daily horror stories about climate change, global warming and the amount of plastic waste littering the planet, not to mention a significant decrease in biodiversity, it is clear that action needs to happen a lot more urgently than has previously been admitted.
Changing the developed world’s economic model from perpetual to sustainable growth is no doubt going to be a major challenge, particularly in the face of a rise in populist political parties putting national self-interest first and also of some leaders, such as US President Donald Trump who despite the evidence still questions the truth of climate change.
Nobel prize-winning economist Joseph Stiglitz makes a distinction between good capitalism, which he calls “wealth creation”, and bad capitalism, which he called “wealth grabbing” (extracting rent).
Some of this thinking may be behind the recent announcement by the UK’s largest money manager, Legal & General Investment Management that warned about “climate catastrophe” and has promised to get tougher on boards where it identifies a high level of executive pay, lack of diversity in senior corporate roles, as well as “insufficient stewardship” of the way the business is acting.
The company voted against the re-election of nearly 4,000 directors in 2018 – an increase of 37%. – and it has published a blacklist of eight companies whose shares they decided to dump.
In October last year, ten companies announced that they were cutting waste by ditching plastic. They included McDonalds, Starbucks, Aldi, Lidl, Pizza Express and Costa. Supermarkets have also been at the forefront of a drive to eliminating throwaway plastic shopping bags, with Morrisons offering both re-usable and paper alternatives and encouraging shoppers to bring their own containers when buying vegetables.
There is already some evidence that becoming a “greener and leaner” company can actually benefit a business’ bottom line.
SMEs have been encouraged to cut their CO2 emissions and offered financial incentives for changing to more environmentally-friendly processes, such as better building insulation and reducing paper use and have seen their overheads reduce as a result. Use of automation and AI has also benefited some.

Are there positive business opportunities for SMEs as a result of cutting waste?

There has been an increase in the number of small businesses, mostly located in High Street shops, specialising in the repair of household products that would once have been discarded and in teaching people how to do the repairs themselves.
Other small businesses have developed classes teaching people how to make or re-purpose their own clothes and are reportedly thriving.
Here are examples of two other SMEs that have developed, and are thriving based on their social, sustainable and environmental awareness.
In Ipswich, a clothes company originally set up in partnership with Indian producers out of a concern for Fair Trade, has recently formed another partnership with African producers to source sustainably-grown cotton which local garment workers then use to make attractive clothes that are imported to UK to be sold online. One of the selling points of the garments produced is that each item comes with a verifiable history of its production.
Another business operating nationwide and based in Essex has created a service for building contractors with contracts to re-purpose or refit existing buildings. It offers site preparation that includes initial site layout, demolition, removal of internal and external fixtures and fittings, and the removal of all waste sorted into recyclable materials that are verified by an independent adjudicator and certified so that both this company and the contractor have evidence of their efforts to be as sustainable and environmentally friendly as possible. It also clears sites at the end of the contract.
With some innovative thinking, there are huge opportunities for SMEs to create completely new, social, sustainable and environmentally friendly products and services.
If you have any examples do please let us know in the comments.

Tags business models, climate change, sustainable growth

Banks, Lenders & Investors Finance Insolvency Rescue, Restructuring & Recovery

Two examples that justify agility when pursuing a retail turnaround

Post author By a.withers
Post date May 9, 2019
No Comments on Two examples that justify agility when pursuing a retail turnaround

This blog contrasts the fortunes of Majestic Wines with those of Debenhams as arguably examples that show how retail business can survive a rapidly changing environment.
There have been efforts by many struggling High Street retailers to improve their businesses by using an insolvency mechanism called the CVA (Company Voluntary Arrangement).
The most recent of these is Debenhams, which, having secured £200 million in new loans in March and followed with a pre-pack administration sale in early April, effectively wiping out its shareholders including the vociferous Mike Ashley who also owns Sports Direct and BHS.
It was acquired by new owners, a consortium of banks and hedge funds, who almost immediately launched a major store closure programme ultimately to involve 50 stores, in conjunction with a CVA aimed at persuading landlords to reduce the rent for remaining stores by up to 50%.
Debenhams’ sales had dropped by 7.4% in the previous six months but it has been argued that the store chain’s problems were more deeply rooted in its dinosaur-like lack of adaptation to the change in consumer buying habits.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “As an investment, Debenhams is a tale of woe from start to finish.
“The strategy since float was out of kilter with the changing habits of consumers. But even before the float [in 2006], its private equity owners had put the department store under financial pressure, by selling off a number of freeholds in favour of leasing them back.
“Hindsight is a wonderful thing, but the road to Debenhams’ ruin has been paved with poor decisions, as well as a dramatic shift towards digital shopping.”
Richard Lim, chief executive of Retail Economics said: “We should not understate the significance of this collapse. Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model.
“Put simply, the business has been outmanoeuvred by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.”
By contrast, a restructure announced by Majestic Wines demonstrates a fine example of retail turnaround agility, where the key word is “pivot”.
In 2015 Majestic bought Naked Wines, a subscription-based online business founded in Norwich by entrepreneur Rowan Gormley in 2008, and appointed Gormley as its CEO.
In March this year, he announced plans to close 200 Majestic stores and to rename the company as Naked Wines. According to Majestic almost 45% of its business came from online with a further 20% from international sales.
The Majestic business model had been to locate its outlets on cheaper out-of-town sites with parking and to sell wines sourced directly from producers in bulk only, in multiples of 12.
But with the change in consumer behaviour Gormley took the decision to restructure the business by pivoting it to online sales only – a potentially more lucrative option as it will release capital from the physical stores to invest in attracting more customers.
Mr Gormley believes that Naked Wines has the potential for strong sustainable growth and has said “We also believe that a transformed Majestic business does have the potential to be a long-term winner, but that we risk not maximising the potential of Naked if we try to do both.
His innovative restructuring may prove that his prediction of sales reaching £500m and of an increase in regular customer payments by 10-15% this financial year may well be correct.
There is no need for retail businesses to become dinosaurs but survival in a changing world requires vision and bold decisions.

Tags business agility, retail turnaround

Banks, Lenders & Investors Cash Flow & Forecasting Finance General

May 2019 Key Indicator – is there still a direct link between rising Brent crude oil prices and inflation?

Post author By a.withers
Post date May 7, 2019
No Comments on May 2019 Key Indicator – is there still a direct link between rising Brent crude oil prices and inflation?

The Bank of England (BoE) governor, Mark Carney, has recently warned of growing inflationary pressures and potential interest rate rises sooner than was previously expected.
At the moment the UK’s inflation rate is at 1.9%, unchanged from the previous month and well below the ceiling of 2% after which the BoE would have to take action.
However, although the core basket of prices that influence the inflation rate is not seen as the problem, the rising cost per barrel of crude oil may be behind Carney’s latest warning.
The current price of Brent crude oil as of April 29, 2019 is $71.22 per barrel, although the monthly average so far this year has been calculated as $64.98. (Figures courtesy of https://www.macrotrends.net )
The idea of a direct correlation between oil price rises and inflation was cemented in the 1970s when the UK economy was hit by an oil embargo by the 1973 by Arab oil producers in response to Western support for Israel in the Yom Kippur war.
The 1970s inflation rate of more than 24% that toppled the government of Edward Heath and forced the BoE under the subsequent government of Harold Wilson to prop up Burmah Oil was arguably determined by oil prices. The resulting “stagflation” also c9ntributed to global food shortages and escalating Trades Union demands for wage increases to cope with the rising prices.
The link between crude oil prices and inflation was fixed in the minds of economists and central banks although it seems to have been forgotten.

So, should the current rising Brent crude oil prices be reason for concern?

This chart (again courtesy of macrotrends) shows the oil price picture over the last decade:
The chart highlights the volatility of oil prices with a 10-year high of £128.14 in 2012 and low of £27.88 in 2016.
At today’s price the future trend would seem upwards although most economists now argue that the direct link between price and inflation is no longer relevant because the world has changed significantly.
Firstly, the economists cite the many other oil producing countries outside of the OPEC cartel and why OPEC is no longer dictating prices. These include Iran, Russia, Brazil, China and Canada, with the US being self-sufficient now it produces its own oil.
Secondly, consumer demand for petrol when the oil prices rise does not reduce and some industries do not pass on the rises to consumers via their products.
Thirdly, they argue that the crude oil pricing model is not simply one of supply and demand because the price of oil is actually set by the oil futures market, which is determined by traders and market sentiments.

So where is the BoE warning of inflationary pressures coming from?

According to the Observer’s business leader at the weekend, the BoE latest quarterly review of the economy sees a combination of a reviving global economy and the UK’s ever-increasing workforce –increasing demand and keep up the pressure on prices. This is contrary to other evidence of a global bubble that is growing.
However, the BoE says: “the only reason that economic activity has picked up in the US, the eurozone and China is because their respective central banks have promised to tear up plans for interest rate rises”.
Despite the positive forecast, supply concerns may prop up oil prices due to the USA’s continued embargo on Iranian oil and its re-imposition of sanctions on countries that buy from Iran. It also has an embargo on Venezuela.
Also, concerns about contaminated oil coming via a pipeline from Russia have prompted European customers Poland, Germany and Ukraine to halt imports via the Druzhba pipeline are all contributing to the currently high price of crude oil.
Whether this will feed into rising inflation and the knock on effect of rising interest rates remains to be seen.
Alas, each generation tends to forget history and the 1970s seem a long time ago!

Tags inflation, oil price rises

Banks, Lenders & Investors Business Development & Marketing Finance

Why the current model of free market capitalism is failing SMEs

Post author By a.withers
Post date April 30, 2019
1 Comment on Why the current model of free market capitalism is failing SMEs

In the late 1970s the then UK Prime Minister Margaret Thatcher and US President Ronald Reagan both espoused the idea of minimal state regulation and of allowing free market capitalism to reign relatively unchecked in line with the theories of the Nobel prize-winning US economist Milton Friedman and The Chicago School, as it was called.
The assumption was that the weakest businesses should be allowed to fail and only the strongest would survive, which would benefit businesses, consumers and result in strong economies. It also assumed that the private sector would provide everything from energy to transport infrastructure to education at a lower cost than if they were state-funded.
Since then we have seen the 2008 global financial crisis, the introduction of a programme of austerity in the UK, central banks reducing and keeping interest rates artificially low, productivity in decline and a widening of the income inequality gap with increasing wealth concentrated in the hands of approximately 1% of the population while wages have barely risen for the majority.
In March the former governor of the Indian Central Bank warned, in an interview on the Radio 4 Today programme, that capitalism is “under serious threat” as it has stopped providing for the masses.
“It’s not providing equal opportunity and in fact the people who are falling off are in a much worse situation,” he said.
It should be no surprise, therefore, that so-called populist and nationalist movements, largely seen as extreme right or extreme left, have been on the rise across Europe as much reported in Italy, France, Germany and UK and also in the “Make America Great Again” USA.
Indeed, as the columnist Bagehot had reported in the Economist the previous June, that something is wrong with the current model has begun to be recognised in Conservative circles, notably by Michael Gove, who, he said, was lamenting: “the failure of our current model of capitalism to deliver the progress we all aspire to”.
The implication is that there is both “good” and “bad” capitalism and that the current situation is far from good.

What are the implications of “bad capitalism” for SMEs?

Top investor, influencer and author of Principles, Ray Dalio, Co-Chief Investment Officer & Co-Chairman of Bridgewater Associates, L.P. in New York, has produced a detailed analysis of the effects of what has gone wrong and how capitalism should be reformed.
He says: “Over these many years I have .. seen capitalism evolve in a way that it is not working well for the majority of Americans because it’s producing self-reinforcing spirals up for the haves and down for the have-nots.”
Dalio also argues that while necessary in 2008 the results of the Central banks’ actions have been to drive up the prices of financial assets focusing investors on financial returns in the short term at the expense of investing for the longer term.
While his focus is on the USA, much of his argument applies to the UK also, in the outcomes being a rise in rent-seeking investment, which puts nothing back into businesses, the economy and society, a race for higher and higher CEO pay, short-termism and a marked lack of highly-educated and skilled young people coming into the workforce.
All of these make it increasingly difficult for SMEs to thrive and grow.
What is needed, he says, is a re-engineering of the capitalist system, to better and more fairly divide the economic pie and to have a system of accountability that makes clear whether individuals are net contributors or net detractors to society. It also needs income redistribution by taxing the richest and using the money to invest in the middle and the bottom primarily in ways that also improve the economy’s overall level of productivity.

Tags Business Development, business stability, free market capitalism

Banks, Lenders & Investors Cash Flow & Forecasting Finance HM Revenue & Customs, VAT & PAYE

Does the Government understand UK SMEs’ problems?

Post author By a.withers
Post date April 25, 2019
No Comments on Does the Government understand UK SMEs’ problems?

A recent fiery opinion piece in the London Evening Standard by Rohan Silva accused the Government of failing to help and therefore destroying UK SMEs.
While most of his ire was directed at the Chancellor, Philip Hammond, due to the 2017 increase in business rates, Silva also alleges: “Poorly implemented plans to make tax digital are costing companies thousands of pounds to become compliant. Big increases in the amount firms have to pay towards pension contributions are making it more expensive to employ people.”
According to the Federation of Small Business (FSB), the business rate increase means the average small company in London now has to find £33,000 a year simply to cover its rates bill. That’s on top of paying rent, NI contributions, corporation tax and running costs. Significant increases in the minimum wage haven’t helped many SMEs either although unlike the other burdens it has benefited employees.
It has become increasingly and depressingly clear that there is a lack of subtlety and nuance in many Government policies that affect UK SMEs.

What are the UK SMEs’ other main problems?

SMEs are said to be “the backbone” of the UK economy but a big problem is that there is no “one size fits all” solution to the pressures they face.
The start-up SME is very different from the established small business, a retail SME with a physical premises is very different from an online retailer yet there is very little recognition of this.
A newly-published British Chambers of Commerce (BCC) survey of 1,000 firms, many of them SMEs, found that almost 60% believe the tax regime is unfair on businesses like their own. The poll saw 67% of respondents say the taxman does not apply rules fairly across all sizes of business.
It quotes Suren Thiru, head of economics at the BCC, who argues that HMRC (HM Revenue and Customs) sees “smaller businesses as low hanging fruit and as a consequence they feel under the constant threat of being called out for getting things wrong in a tax system that has grown ever more complex.”
According to R3, the trade body of the insolvency profession, the Chancellor’s recent proposal to make HMRC a preferential creditor in insolvency is only likely to make the situation worse, by adding to the risk that banks and finance providers won’t lend without personal security and suppliers will be less willing to provide credit terms in the future.

Other issues raised by UK SMEs

One issue is that there is insufficient weight given to those businesses outside of London, with an uneven spread of investment that favours the capitol.
Bibby Financial Services’ confidence tracker found that there was patchy awareness among SMEs about local initiatives with just 54% local firms aware of the Midlands Engine and 36% of Northern SMEs believing that there is too much focus on the Northern Powerhouse at the expense of other Northern cities.
Then there is the difficulty SMEs have in accessing and negotiating Public sector contracts, not to mention the hurdles and perceived lack of help they face when accessing export markets. A 2019 survey by techUK of 101 SMEs across the technology sector, found that just 15% of respondents think that the government has an adequate understanding of the role SMEs could play in public sector provision.
To end on a more positive note I should mention one initiative which is beginning to show some success in supporting SMEs and that is the Prompt Payment Code. This follows the recent change that now allows the Small Business Commissioner, Paul Uppal, to investigate cases and to name and shame those large business offenders who continue the practice of late payment.

Tags business costs, business support, UK SMEs

Banks, Lenders & Investors Business Development & Marketing Finance General

Failing to recognise the equal value of women to the economy is short-sighted

Post author By a.withers
Post date April 18, 2019
No Comments on Failing to recognise the equal value of women to the economy is short-sighted

It is dispiriting in the 21st Century that investors and businesses are still not recognising the equal value of women and their contribution to achieving success.
Two recent reports have – yet again – highlighted this discrepancy.
Not only did many businesses fail to meet the Government’s recent deadline for reporting on their gender pay gap but, according to BBC research, fewer than half of the UK’s biggest employers have succeeded in narrowing their gender pay gap. In fact, in 45% of firms the discrepancy had increased.
The Fawcett Society, which campaigns for gender equality, described the figures as “disappointing, but not surprising”.
More alarmingly, various reports have revealed that women entrepreneurs face an uphill struggle in getting investment finance.
Government analysis has found that less than 1% of venture capital investment in the UK goes to female-led start-ups. Its research was carried out by the British Business Bank, Diversity VC and the British Private Equity and Venture Capital Association.
Recently, the Daily Telegraph reported an example where a women posed as a man in order to apply for funding from investors:
After receiving patronising responses to her requests for financial backing for her technology consultancy business from male investors, entrepreneur Brittney Bean, the Telegraph reports: “She wrote to investors under the persona of “Nigel” – her male head of finance. “I’d reply as a man, saying, ‘I’m now taking this company’s finances over, is it possible that we can extend the credit line?’ And the reply was like, ‘It’s great to start working with you. Of course, we can help with that,”.

SMEs and investors miss out by Ignoring the equal value of women to the economy

Of course, if the culture is to change then schools, colleges, apprenticeship schemes and employers all need to play their part.
Research by a team under Robert M. Sauer, chair of economics at Royal Holloway University, has found that having a bank loan increases average business value by €96,500 for men and €174,545 for women.
While Samantha Smith, chief executive of FinnCap Group, suggests that improving female entrepreneurs’ access to venture capital funds could help boost UK GDP.
Yet the bias towards investing in male-dominated ventures persists. Where is the evidence that men, rather than women are likely to develop the “next big thing”?
And when there are skills shortages in many sectors, why narrow the recruitment pool to such an extent? Surely the most crucial thing for a business is to find the best available talent regardless of gender – or ethnicity.
It is time these chauvinistic attitudes were consigned to history, where they belong.

Tags business women, gender pay gap, women entrepreneurs

Banks, Lenders & Investors Business Development & Marketing Finance HR, Redundancy & Trade Unions

What kinds of jobs will be taken over by automation?

Post author By a.withers
Post date April 16, 2019
No Comments on What kinds of jobs will be taken over by automation?

In late March, the ONS (Office for National Statistics) published its latest findings on the effects of automation on the jobs market.
It found that some 1.5 million jobs were at high risk from automation, but, tellingly, 70% of these roles were currently held by women. The next most at risk groups were part timers and young people.
The ONS calculates that around 710,000 jobs in the City may be taken over by automated technology, with around 39% of jobs in the accounting, legal and financial services sectors most likely to be automated and that 34% of roles in tax advice could be affected..
Waiters and waitresses, shelf fillers and elementary sales occupations, are most likely to go, all roles defined as low-skilled or routine. Increasing numbers of factory workers are also at risk of being replaced by machines.
Least endangered are medical practitioners, higher education teaching professionals, and senior professionals in education although many of their support functions such as data capture and preliminary assessments are already being done by computers.
Deeper analysis suggests that automation has already dispensed with some lower-skilled work because although the overall number of available jobs has increased, according to the ONS, these are in low or medium risk occupations.
According to Maja Korica, associate professor of organisation at Warwick Business School, 20% of the Amazon workforce, for example, may already be made up of robots.

Are the economy, employers and businesses prepared for the risk from automation?

While it seems that manufacturing is already moving ahead with automation, the question is whether there will be enough higher-skilled people available for the future.
The take-up of apprenticeships by business has repeatedly failed to hit targets set by the Government.
While the future for the economy is still so uncertain, many employers will continue to delay investment in the long term productivity benefits that automation offers.
In the short term, therefore, there continues to be a need for lower-skilled workers with demographic groups being overlooked by employers, according to Pawel Adrjan, a former Goldman Sachs economist who now works at the jobs group, Indeed.
He argues that employers will need to search across underemployed demographic groups (young people, single parents, ethnic minorities, people with disabilities) at least in the short term as more and more EU workers either leave the UK or decide not to come and work here.
Clearly, the economy and various sectors are still in a state of transition, so it may be that relatively low-skilled work will be around for a while yet. But when automation ramps up there will be a need for more skilled workers as operators. Despite the loss of some jobs, automation offers scope for everyone involved to benefit.

Tags automation, Business Development, unskilled jobs

Banks, Lenders & Investors Business Development & Marketing Finance General

April 2019 Key Indicator – the state of the EU economy

Post author By a.withers
Post date April 2, 2019
No Comments on April 2019 Key Indicator – the state of the EU economy

Leaving aside its obvious concerns about its future relationship with the UK, the EU economy has more than enough troubles of its own to contend with.
With global growth slowing the EU economy can hardly expect to be immune, but there are some inbuilt issues that are likely to become more pressing and will need to be dealt with as a result.
Europe’s demography is against it with an ageing population and the number of people of working age falling by 0.5% a year despite which the EU unemployment rate has remained stubbornly high at 8% since the 2008 global financial crisis. This is unlike the USA which has a rising workforce, while the UK has a growing immigrant population, with both countries’ unemployment reducing significantly.
The global pecking order in terms of the size of national economies is changing with EU countries falling down the global rankings according to the latest HSBC economic model as highlighted by Hamish McRae in yesterday’s Evening Standard. Germany falls from fourth behind the US, China and Japan, to fifth, France to seventh, Italy to ninth. HSBC notes that Austria and Norway won’t make it to the top 30 by 2030 and Denmark will drop out of the top 40. The UK, however, is ageing marginally more slowly.
McRae calculates on this basis that the EU falls from about 22% of the world economy to about 17% and without the UK it falls to below 14%.
There are political tensions in several EU countries, as elsewhere, which have given rise to populist movements, such as in Italy and in the ongoing push for Catalonian independence in Spain. With EU Parliamentary elections due in May, this is likely to be a worry.
The ECB (European Central Bank) is regarded as notably conservative and this may, in part, explain why recovery since 2008 has been so slow.
It must also be remembered that the EU is a mix of widely disparate countries, some still using their own currencies, others having adopted the Euro and this, too, creates some tension.
The “powerhouse” countries in the EU have always been Germany, UK and France, with the French and German economies relying heavily on manufacturing and exports, but these have become the source of their current troubles.
Germany narrowly avoided recession in the fourth quarter of 2018 with its largely export-oriented industry suffering, particularly the automobile sector due to a decline in the sale of new cars not least down to tariffs on imports into US and a significant drop in sales to China. Its banks, too, have been struggling, hence the proposed merger currently under way between its two biggest banks, Deutsche and Commerzbank, a merger aimed at survival based on weakness not strength.
France has fared a little better, but not by much, and it has brought political troubles in the shape of ongoing weekly protests by Les Gilets Jaunes.
Italy’s banks, too, are in dire shape and the Italian economy has been struggling for the past 20-plus years, not helped by its national debt relative to its GDP being second only to Japan’s and its population getting smaller.
After narrowly winning its argument with the EU, which refused at first to accept its latest budget, Italy has recently announced that it will be the first EU country to take part in China’s Belt and Road initiative – an attempt to link Asia, the Middle East, Africa and Europe with a series of ports, railways, bridges and other infrastructure projects. Clearly, Italy has become tired of waiting for the EU to put its monetary house in order, but what are the prospects for its economy?
It has been argued, not least by the Guardian’s Larry Elliott, and by the French leader Emmanuel Macron, that the EU needs closer political and economic integration and that there are design flaws in monetary union that are becoming more obvious and in more urgent need of a fix.
Another issue that, Elliott argues, is making countries in the EU less competitive when pitted against the likes of China is that EU industries are mostly mature, more than 25 years old, and there are no equivalents to Facebook, Google and the like, nor any significant businesses in the emerging technologies of the fourth Industrial Revolution, such as artificial intelligence.
Clearly, there is much to be done to improve the EU economy although it does seem to focus on old industry rather than stimulate business based on new technologies and in Hamish McRae’s view, whatever the current Brexit troubles, it is in the interests of both UK and EU to co-operate.

Tags EU economy, global growth

Banks, Lenders & Investors Finance Turnaround

Can zombie and critically distressed businesses be resurrected from near-death?

Post author By a.withers
Post date March 19, 2019
No Comments on Can zombie and critically distressed businesses be resurrected from near-death?

More than one in ten (11%) UK businesses is a zombie business at the start of 2019, according to the Business Distress Index produced by the insolvency and restructuring trade body R3.
The figure rises to 16% of businesses in the North East, according to the Newcastle Chronicle, and the state of many more UK businesses is graphically illustrated by research from Begbies Traynor’s most recent Red Flag Alert, which showed that the number of businesses in “critical” distress leapt by a quarter to 2,200 in the fourth quarter of 2018 while those in “significant” distress remained roughly flat year-on-year at 481,000.
A zombie business is generally defined as one that is only able to pay the interest on its debts, not repay the principal debt.
As such, economists argue, these businesses act as a drag on investment, productivity and the economy, because they do not have the available capital to invest in new operations, products, or services, while the investment tied up in them is denied to other, nimbler companies.
Also, it is argued, many of them are only surviving because of the continuation of the very low interest rates that Central banks put in place in the wake of the 2008 Crash. Indeed, the BIS (Bank for International Settlements), the umbrella organisation for global central banks, has argued that the steep increase in the numbers of zombie companies has been “one of the dangerous by-products” of persistent low interest rates.
Is there any point in trying to rescue zombie and critically distressed businesses?
Inevitably all this supports the doom and gloom merchants who are predicting an imminent recession exacerbated by Brexit uncertainty, a decline in globalisation and ongoing trade wars.
Ric Traynor, executive Chairman of Begbies Traynor, suggests that in today’s world businesses need to be able to change direction quickly.
“Far too many companies have been caught out by an unwillingness to rapidly evolve and adapt to the new climate we are in,” he says.
We would argue that before such businesses throw in the towel completely it is worth getting help from a turnaround and restructuring adviser.
They will conduct a thorough and in-depth review of the state of the businesses and identify its weaknesses and strengths and may be able to offer solutions, some of which may involve radical restructuring and reorganisation to fundamentally change the business.
This may involve slimming down the business to a core activity that is profitable in a way that justifies investment in a new strategy that becomes the foundation for future growth.
We have some Guides that might help here such as a Guide to Productivity Improvement. Do look up our library of Guides at:
https://www.onlineturnaroundguru.com/knowledge-bank

Tags business investment, Business Rescue, productivity, zombie businesses

Banks, Lenders & Investors Business Development & Marketing General

March sector focus on UK food production, imports and exports

Post author By a.withers
Post date March 12, 2019
No Comments on March sector focus on UK food production, imports and exports

Tea, the UK’s favourite beverage, could become a luxury if analysis by HSBC of a no-deal Brexit is to be believed.
The analysis, published by Business Insider in January, puts the amount of food imported into the UK at 80% if ingredients for processing products are included. Tea, for example, may be processed in the UK but is not grown here.
The prospect of no easily-available cuppas should really concentrate the mind!
Joking aside, an examination of UK food imports and exports indicates just how closely-integrated the food and food processing supply chain really is, and how much relies on the EU.
An analysis of the food industry must cover trade in both ingredients and processed foods. It is complicated by the fact that some ingredients, such as beef, pork and lamb, are often produced in UK but exported for processing and then re-imported as finished products such as cuts of meat ready-packaged for sale or as ingredients in ready-meals. This is the result of us in UK having so few processing facilities.
A further complication for UK food producers/farmers is the shortage of labour, from overseas workers for picking and packing to HGV (Heavy Goods Vehicles) drivers for transport.
This all suggests the likelihood that the cost of food imported into the UK is likely to rise sharply.

What food and drink does the UK export and to where?

According to the most recent statistics from the FDF (Food and Drink Federation) the top ten UK exports by value, in order, for 2018 were:

Whisky
Chocolate
Cheese
Salmon
Wine
Gin
Beef
Beer
Breakfast cereals
Soft drinks

At the moment it calculates that some 75% of this trade is to countries within the EU and as such may mean that new trade agreements, tariffs and so on may have to be developed with both EU and non-EU countries. Some UK food products have EU Protected Food Name status.
Non-EU target markets are likely to include New Zealand, Canada and/or the USA, China and other Asian countries but again all will need trade agreements to be put in place.
ADAS, the UK’s largest independent provider of agricultural and environmental consultancy, rural development services and policy advice, has analysed some of the potential opportunities for the UK to pursue in developing food exporting outside the EU.
For beef and veal, it suggests China, rest of Asia and Africa for offal and the USA for premium cuts but lists among the UK’s weaknesses its limited market access, uncompetitive pricing and the lack of processing facilities.
It is a similar story with sheep products, with the additional factor of already-established competition from Australia and New Zealand. Pork exports could be targeted at South Korea, Vietnam, China and the rest of S Asia but this will take time to put in place.
For dairy products ADAS sees opportunities in countries where there is a growing and affluent middle class, such as China, the Middle East and North Africa.
The UK already has an established global trade for its cereals and oilseeds with Algeria, Tunisia and Japan and here, too there may be potential for further market development.
The AHDB, (Agriculture and Horticulture Development Board, Stoneleigh, Warwickshire), too, sees potential for expanding UK food exporting particularly in dairy products.
Its analysis says: “The main trade-related opportunities of Brexit for the UK dairy industry will focus on displacing imports or growing new export markets. If the UK manages to negotiate a trade deal with the EU allowing tariff-free access, then the likelihood is for business as usual with the EU.
“However, if not, any import tariffs imposed by the UK could provide an opportunity to substitute a number of imports with British milk. Experience from the EU suggests that tariffs may limit the scale of imports of commodity-type products, although speciality products will probably still reach the UK.
“Combined with increased supply chain investment, this could see the UK progress as an industry.”
While opportunities for export are identified in all the analyses, they are contingent on the ability to negotiate Free Trade or Low Tariff agreements with potential customers as well as fending off already-existing arrangements that have been established by the EU.
The other glaring UK deficiency is in the scarcity of in-country facilities for processing foods for export.
It also remains to be seen how UK farmers and growers will be affected by the loss of various agricultural subsidies that have protected EU farmers for many years.

Tags Business Development, business growth, UK food export

Banks, Lenders & Investors Cash Flow & Forecasting Finance

Are we nearing a Minsky moment foretelling the next economic crash?

Post author By a.withers
Post date March 7, 2019
No Comments on Are we nearing a Minsky moment foretelling the next economic crash?

Hyman Minsky died in relative obscurity in 1996 but economists have adopted his name as a description of particular moments in an economy when asset prices collapse after months of seeming stability.
The 2008 Global financial crash is now seen by economists such as Nobel Prize-winning economist Paul Krugman, as well as former central bankers Janet Yellan in the US and Mervyn King in the UK, as a Minsky Moment.

What is a Minsky moment?

In the 1970s Minsky outlined his economic theory, known as Stability is Destabilising, in stark contrast to the macro-economic theory that argues that the modern market economy is fundamentally stable.
In Minsky’s analysis banks, firms and other economic agents become complacent during periods of economic stability. As a result, they take greater risks in pursuit of profits.
A Minsky moment is a sudden, major collapse of asset values which generates a credit cycle or business cycle. The result is rapid instability as a consequence of long periods of steady prosperity and investment gains that built up risk through ever more leverage instead of improving the balance sheet.
Essentially it is an assumption of never ending growth funded by debt.
Arguably, this is exactly what happened in the run-up to the 2008 crash as banks and other lenders issued complex instruments such as Credit Default Swaps to conceal leverage and risky lending. The crisis crystallises when either interest rates rise or when replacement finance is so expensive that borrowers are unable to pay interest on their debts, never mind the debt itself or even some of the principal.

The Minsky Cycle

A Minsky cycle is a repetitive chain of Minsky moments, when a period of stability encourages risk taking, which leads to a period of instability when risks are realized as losses. The result is that participants move to risk-averse trading (aka de-leveraging), to restore stability, which eventually leads to complacency and so on so the whole cycle repeats.

So, is there a risk of an imminent Minsky moment?

Some investors have been warning of the likelihood of an imminent Minsky moment for the last couple of years.
Asset prices have been relatively high, stock markets have been buoyant and, crucially, central banks have kept interest rates artificially low for much longer than was anticipated after 2008 in order to prop up their economies and allow time for stability and growth.
It is worth noting that the US Federal Reserve late last year started to increase interest rates slightly and we should watch carefully what happens in other central banks.
The IMF, too, has been warning of the risks or another financial crisis as the global market has been slowing markedly.
While Minsky tended to concentrate his analysis on the economy of an individual state, another now-deceased contemporary of his, Susan Strange, who taught at the London School of Economics, supported his thinking but had a broader, global political perspective.
She argued that individual economies should not be seen in isolation but in fact are woven together across the world. This introduces the idea of contagion, where financial crises flow across borders. She also introduced the influences of a rise in populism and growing inequalities between rich and poor into the analysis.
Arguably, this is a more accurate analysis of the consequences of the Minsky Moment that began in 2008.
All this looks uncomfortably like what seems to be happening in economies now, but it is hard to say for certain yet whether a Minsky Moment is imminent. We only ever find out after the event.

Tags economic instability, Financial crash, Minsky moments

Banks, Lenders & Investors Business Development & Marketing Finance General

March Key Indicator – Investment in the UK

Post author By a.withers
Post date March 5, 2019
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Investment is a tricky term to unravel largely because the investment objectives are key to any decision and predicting the future is so difficult, especially given that past performance is rarely a predictor of future returns. Despite the lack of certainty, much analysis is necessary.
Much has been made recently in the UK’s uncertain economic climate about the massive reduction in investment being made by UK businesses in their companies.
It is argued that with the future so uncertain, businesses are holding onto their cash reserves and delaying plans for growth and indeed towards the end of last year the BCC (British Chambers of Commerce) was warning that British businesses had paused investment in growth. However, this is also an excuse used by weak leaders and those who lack a vision.
But investing in the future and growth of your own business is only one level of investment.
At a higher level, investors can be pension funds, investment “vehicles” or funds run by investment companies, and Foreign Direct Investment (FDI) by businesses from one country into those in another.
A rise in investments in the stocks and shares of businesses in an economy is generally regarded as a positive thing.
So, at the moment, UK equities seem to be doing well in that Bloomberg, for example, has just reported that the UK’s top ten investors, in which it includes Invesco, Schroders, Aberdeen Standard and Legal & General, have increased their holdings of UK-listed shares by more than a third over the last three years. This is interpreted as showing a degree of confidence in the UK’s long-term future.
In January CityAM interviewed Shroders’ CEO Peter Harrison reporting that he expected 2019 to be a better year for investors.
Similarly, ONS (Office for National Statistics) data shows that overseas investment into the UK is at its highest level ever, with investment from India, the US and from Japan leading the field.
Sectors currently seen as attractive by equity investors are the financial services and, for both Angel and Venture Capital investment, the UK tech sector, particularly for those businesses developing innovative software, and in Fintech (financial technology).
The key to understanding investors and their behaviour, however, is to examine their expectations.
Much has been made of the short-termism of many investors and shareholders and its negative impact on businesses. In this scenario, investor pressure is for maximum profits or returns on their money over a short period. This pressure can change the behaviour of boards of directors and even influence the remuneration packages of CEOs so that those who deliver maximum profits in the shorter term are well rewarded. It is questionable, however, whether this is in the longer-term interests of a business.
Generally speaking this type of expectation is most likely to come from pension fund-type investors, where fund managers themselves are under pressure to maximise profits for their members.
Arguably the most successful and reliable investment funds, however, are those that take a longer-term view and focus on the lifetime value and potential of a business.
Warren Buffet’s Berkshire Hathaway vehicle and Terry Smith Fundsmith fund are the top performers using this type of investment model.
Buffet’s “value investing” style focuses on business, management, financial measures, and value and the emphasis is on the long term. He is less interested in the market or the economy or investor sentiment, focusing instead on consistent operating history and favourable long-term prospects.
Terry Smith uses a similar approach as described in a Guardian article last year. Since its founding in 2010 it has made a gain of 309%. His fund has a low turnover of shares and his message is simple: “Buy good companies. Don’t overpay. Do nothing.”
Smith says he avoids certain sectors like insurance companies, real estate, chemicals, heavy industry, construction, utilities, resource extraction and airlines. He recently launched a new fund, called Smithson, focusing on in mid-size companies. Like Buffet’s, Smith’s focus is on the longer-term value in businesses and this is where he chooses to put his money and those of the investors who are members of his fund.
Clearly if a business can attract the interest of either Buffet or Smith in investing it can have some confidence in its stability and its future. Strangely their strategies are similar to those of well run private businesses, although this is perhaps less surprising given that their money is in their funds.

Tags business growth, business stability, value investment

Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency

Monthly global outlook – the Bears are gathering for a global economic slowdown but will it be a crash?

Post author By a.withers
Post date February 28, 2019
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While the “B” word is the focus of attention in UK and cited as the cause of low productivity and a UK economic slowdown, there is a growing body of evidence outside UK that is indicating a global economic slowdown although few are yet predicting a crash.
According to the Independent’s economics writer Hamish McRae: “The European economy has pretty much ground to a halt – and this has very little to do with Brexit. If, however, the Brexit negotiations go badly, then the sky darkens – and not just across Europe.”
Certainly, the prospects across the world are looking gloomier.
Recessions tend to be cyclical and come at 10-year intervals, and it is now a decade since the global Financial Crash of 2008.
Arguably, much more important than Brexit is the fact that ten years on Central Bank intervention continues, there are enduring low interest rates and that many nations are still on emergency monetary policies. And there is now a huge mountain of debt that everyone seems to ignore.
US Nobel prize-winning economist Paul Krugman is one of those predicting that there will be a recession in America by the time Donald Trump comes up for re-election at the end of next year.
The second half data from 2018 suggests that global growth has peaked and reported the onset of falling demand for goods and declining factory output in China, Germany, Japan and South Korea, to name a few of the countries particularly dependent on global trade.
In Davos last month IMF managing director, Christine Lagarde, warned that the risks of a sharper decline in activity had increased. Earlier this month came a report from the WTO (World Trade Organisation) that its quarterly indicator of world merchandise trade had slumped to its lowest reading in nine years.
Several Central banks, including the ECB (European Central Bank) and the Chinese have been trying to stimulate growth and investment.
You may remember that both Paul Krugman and Kenneth Rogoff, who is professor of economics and public policy at Harvard University, predicted the 2008 financial meltdown although they were ignored at the time.
However, interest rates remain at rock bottom and debt has been creeping up. As Krugman says, “we came into the last crisis with interest rates well above zero, we came into the last crisis with debt substantially lower than it is now … and we came into the last crisis with substantially better leadership …”
Herein lies the problem.
The world has changed, perhaps as a result of ten years continuing pain since of 2008 and little prospects of respite in the future. We have seen a rise in protectionism and “populist” movements, most notably in Italy, in Eastern Europe and in Trump’s America, in his sanctions threatened against China, and in tensions between the US and Mexico.
If, as Krugman predicts and Rogoff warn, another economic crisis is looming it is unlikely that we will see the same, co-ordinated government action as was made by the G20 in 2008 that staved off a complete economic meltdown. Although this time there is little left in the tank, especially given the low rates of interest and huge levels of national debt. I see the seeds of huge interest rate rises.
To quote Rogoff in a recent article in the Guardian: “Crisis management cannot be run on autopilot, and the safety of the financial system depends critically on the competence of the people managing it…. The bad news is that crisis management involves the entire government, not just the monetary authority. And here there is ample room for doubt.”

Tags business prospects, global economic slowdown, interest rates

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance

What’s ahead for the retail sector in 2019? – February sector focus

Post author By a.withers
Post date February 7, 2019
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It has been obvious for some time that the High Street is undergoing massive changes as online shopping gains a growing share of the retail pie.
Not a week goes by without another announcement of a “big name” closure or restructure and the New Year has been no different after mediocre Christmas sales with Hardy Amies and HMV falling into administration for a second time, Patisserie Valerie and Odd Bins filing for insolvency and Marks & Spencer announcing further store closures as part of its ongoing restructuring.
The figures make gloomy reading.
Deloitte says it has been instructed by more than 20 struggling high street chains in the past two months to assess whether they are eligible for restructuring their debts and lease obligations, according to the Sunday Times.
Towards the end of January the Guardian carried out a survey of the decimation that has beset High Streets in 88 major town centres in England and Wales and found that they have lost 8% of their shops on average since 2013.
Some have fared worse than others with Stoke on Trent topping the list with a loss of 23% of its 415 stores in five years.
Clothing and restaurant chains have fared worst, according to the research, but, surprisingly perhaps, charity shops have also been hit.
By contrast it also revealed that “a thousand extra hair and beauty salons have sprung up in our town centres”. Also, convenience stores and independent supermarkets have also grown in almost all town centres.

The stresses and strains on the retail sector

In common with other businesses, but arguably having more impact on SMEs, retail has had to contend with rising minimum wages and pension contributions for staff.
But added pressure has come from the high cost of rent and of town centre business rates, both of which the online retailers escape. Online retail now accounts for 20% of consumer retail spending, which adds to the pressure on High Street retailers as consumer buying habits change. This 20% figure when compared with 8% of shop closures would suggest there are many more closures to come.
At the moment, there are signs that worry about the future of jobs and the unknown impact of Brexit is currently putting a dampener on consumer spending and confidence.

Is there any light in 2019 at the end of the High Street retail tunnel?

Certainly, the Sports Direct owner Mike Ashley seems to think so, as do some others.
HMV has just been purchased by a Canadian business, Sunrise Records, although 27 stores will be closed as part of the deal.
Mike Ashley has purchased a share in House of Fraser stores and Evans Cycles to add to his growing portfolio and has recently had some success in renegotiating rents with landlords in some shopping centres, saving some House of Fraser stores that had been under threat. He is also laying siege on Debenhams hoping to pick up another High Street trophy.
Ashley has been vocal in calling for a complete rethink on business rates and for a 20% sales tax to be imposed on online retailers which would help justify his acquisition strategy.
Sir John Timpson has also called for business rates to be replaced with a sales tax operating in a similar way to VAT.
The MP Grant Shapps has also called for radical action to save the High Street, including a reduction in business rates with which he claims the government has so far only “tinkered” with.
These calls have also been backed by Mike Cherry, chairman of the FSB (Federation of Small Businesses), adding “A healthy high street should be diverse – not just featuring retail but also hospitality, services like hairdressers as well as gyms and shared workspaces for the self-employed. High parking charges and a lack of spaces often put off shoppers from visiting town centres, instead favouring out-of-town retail parks with free parking.”.
To add weight to their argument the OECD (Organisation for Economic Co-operation and Development) has said Britain has the second-highest property taxes in the world with business rates, council taxes and stamp duty making up £1 of every £8 collected by the Treasury.
In a sign of some movement in December it was announced that Nicky Morgan MP, chair of the Commons Treasury Select Committee, will hold a joint evidence session with the Housing, Communities and Local Government Committee to agree the terms of a new inquiry into the business rates system.
The death of the High Street has been predicted for some years but there are signs that some people feel there is life there yet, subject to some radical rethinking and tax reform.

Tags Business Development, business taxes, High Street Retail

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance Turnaround

The state of UK exporting – our February 2019 monthly Key Indicator

Post author By a.withers
Post date February 5, 2019
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The health, or otherwise, of UK exporting is perhaps an obvious focus for my monthly Key Indicator as the deadline for the UK’s exit from the European Union moves inexorably closer.
Firstly, some positive news; according to the ONS (Office for National Statistics) the number of British firms trading internationally rose by almost 16,000 last year, an increase of 15,900 last year to 340,500, which now represents 14.3% of total non-financial businesses in the UK. Non-financial services made up 53.1% of Britain’s international traders.
On a trade mission to China in November which was focused on the food and drink industry, Government Minister David Rutley was reported to have said the sector’s exports had doubled in the last three years.
Meanwhile in December the CBI (Confederation of British Industry) reported that factory orders for exports had increased for the second month in a row. Production expanded in 15 out of 17 sub-sectors, led by food, drink, tobacco, mechanical engineering and chemicals.

Which countries are UK exporting’s largest trading partners?

Wikipedia has a useful list, showing that the top five of the UK’s trading partners are, in first place “non-EU partners”, then the EU as a whole, followed by Germany, The US and China. Japan comes in at number 17, India at 20 and Saudi Arabia at 23.
While Wikipedia’s information depends heavily on the knowledge and accuracy of its voluntary contributors, some of this is borne out by ONS information in a 2017 paper that also indicates that the UK is seeking to strengthen trade with non-EU countries like China, India, the United States, Australia and New Zealand.
Nevertheless, the EU countries remained at the top of the list, according to the most recent ONS figures: “In 2016, the EU accounted for 48% of goods exports from the UK, while goods imports from the EU were worth more than imports from the rest of the world combined.”
According to the ONS, in 2016 Exports to the rest of the world were worth £284.1bn while to the EU it was £235.8bn which represents a decline in the share of UK exports of goods and services to the EU from 54% in 2000 to 43% in 2016.
The special relationship with the USA remained important, said the ONS paper, with UK exporting in surplus and valued at £100 billion, “more than twice as much as exports to any other country”.

So what of the future of UK exporting post Brexit?

There are inevitably many uncertainties about the future.
The Financial Times, for example, reported in mid-January that a Whitehall memo had revealed that Britain has so far failed to finalise most trade deals needed to replace the EU’s 40 existing agreements with leading non-EU economies.
Also, in contrast to the optimistic indicators above, the December 2018 IHS Markit’s industry survey on manufacturers reported that while only one in ten were expecting a contraction in the early months of 2019, less than half were expecting output to be higher over the year ahead.
The survey also reported that new export orders had slowed for a second consecutive month with fewer customers from overseas being interested in business, although the consumer goods sector was the one exception.
Perhaps the major factors that will determine UK’s future level of exports are the China/US trade war and China’s growth slowing. Certainly, many UK businesses are spending money on stockpiling parts, raw materials and goods to protect their just in time production processes and in doing so they are not investing in growth, which makes predictions for the future very difficult.

Tags business growth, UK exporting

Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance

Our monthly look at the global macroeconomic climate

Post author By a.withers
Post date January 24, 2019
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It’s January so that means it’s time for the annual gathering of the “great and the good” at the World Economic Forum in Davos.
This year, by contrast to January 2018, there is more than a tinge of gloom about the proceedings from which both US President Donald Trump and UK Prime Minister Theresa May will be missing due to more pressing issues at their respective homes.
So far, there have been two stand-out revelations about the global macroeconomic climate, neither of them encouraging.
According to a survey carried out by PwC “Pessimism among chief executives has risen sharply in the past 12 months as the leaders of the world’s biggest companies have taken fright”, a sixfold increase since January 2018. Their concerns have been largely attributed to increasing protectionism, or nationalism as some would have it, notably in Turkey, Poland, Italy and the USA and to the deteriorating relationship between the USA and China as a result of the ongoing trade war instigated by Trump.
The IMF (International Monetary Fund), too, has issued a warning of escalating tensions, not only from the aforementioned trade war, but also because of the ongoing indecision, indignation and intransigence that is besetting all participants in the still inconclusive negotiations for UK leaving the EU, aka Brexit.
Brexit concerns are clearly having an impact on the UK economy, which the ONS (Office for National Statistics) revealed has been stagnant for the last three months of 2018. Both the manufacturing and pharmaceutical industries performed particularly poorly and there has been a marked reduction in export demand.
Arguably, however, there are also repercussions elsewhere, some economic, some political.
Germany has experienced slowing growth, Italy’s financial markets remain unsettled by the now-resolved argument over its budget, which planned increased spending. China’s growth, too, has slowed markedly.
Indeed, there are signs of weakness in the European economy with the prospect of a recession and likely need for the European Central Bank to give more support for some countries.
Arguably, the UK’s dogged determination to leave the EU Is contributing to EU’s problems and strengthening populist/ nationalist demands that are also undermining the global economy.
Then there is the increasing urgency to tackle both climate change and the vast income inequalities that exist in many developed and developing economies.
All in all it looks like the global macroeconomic climate at the start of 2019 is for the time being decidedly stormy.

Tags Davos, global macroeconomic climate, World Economic Forum 2019

Accounting & Bookkeeping Banks, Lenders & Investors Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance

January sector focus: Fintech

Post author By a.withers
Post date January 10, 2019
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Fintech is used describe new technology that seeks to improve and automate the delivery and use of financial services.
Originally the term was applied simply to technology employed at the back-end systems of established financial institutions.
Over time, however, the Fintech definition has been expanded to include any technological innovation in — and automation of — the financial sector, including advances in financial literacy, advice and education, as well as streamlining of wealth management, lending and borrowing, retail banking, fundraising, money transfers/payments, investment management, asset management and some would now also include crypto currencies such as Bitcoin and their administration.
Fintech is also sometimes described as disruptive technology, in that many Fintech start-ups are designed to provide financial services in non-traditional ways, such as by offering online shoppers to secure immediate, short-term loans for purchases, bypassing their credit cards or by offering online and App-only services that bypass traditional lenders.
While traditional lenders and finance providers have tried to adopt some of the Fintech innovations, they begin with burdensome overheads and cannot generally compete unless they embrace the need to fundamentally change their existing thinking, processes, decision-making, and overall corporate structure. This is not something most managers can cope with.
There is now a vast array of Fintech categories of which the following are just a few examples:
B2C for consumer banking activities such as arranging loans and providing customer credit facilities,
B2B for small business clients (as above)
B2B for small businesses for activities such as taking payments, credit management and managing debtor ledgers
B2C for consumers for activities such as contactless payment and payment by mobile phone, online banking, applying for financial services such as a mortgage or loan, online shopping payments and many more.

Fintech as a part of the UK economy

In 2017 at the first ever International Fintech conference argued that the UK was the leader in this sector with a competitive advantage in the provision of Fintech services due to its sophisticated financial community and the growth of technology hubs like Silicon Fen in Cambridge and Silicon Roundabout in London.
The phenomenon was described as being an essential aspect of the UK vision for “an outward-looking, Global Britain” which would not only provide a high skilled, high wage economy but would attract the best talent from all over the world.
At that time, according to Treasury figures, the industry was worth £7 billion to the UK economy and employed an estimated 60,000 people.
It has been calculated that there are almost three times as many UK banking and payments companies now than there were in 2005 while the rest of the world has seen theirs fall by around one-fifth on average.
In May 2018, Technation reported their research in an article in Information Age that the UK’s tech sector, of which Fintech is a part, was expanding 2.6 times faster than the rest of the UK economy, with Fintech start-ups located not only in London but throughout the UK.
The Technation analysis also looked at the impact of Brexit on the sector, finding that by and large tech firms were undaunted by the prospects of leaving the EU.
However, Financierworldwide, provided a more sober analysis, identifying some of the potential challenges to Fintech.
These included future freedom of movement of labour and the absence of sufficient numbers of skilled tech workers available in the UK, the loss of the ease of the passporting of services to other EU markets and consequently the decision Fintech companies may face of whether to relocate to other countries in Europe, at least in the short term. Among the cities expected to be most likely to benefit from welcoming such moves are Dublin, Paris and Berlin.
There is also the worry that the loss of passporting rights after Brexit would deter the currently high levels of investment in UK Fintech.
Finally, regardless of Brexit, if Fintech is to thrive, after a year of seemingly frequent banking technology meltdowns, not to mention hacking scandals, there needs to be much more robust and secure protection against fraud and data protection. To achieve this we at K2 have invested in Tricerion as the future of login security. Check it out at www.tricerion.com.

Tags business processes, Fintech

Banks, Lenders & Investors Business Development & Marketing General Turnaround

New Year, new start – a good time for some SME forward planning

Post author By a.withers
Post date January 8, 2019
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The end of last year was a time that most businesses would prefer to forget given the continuing uncertainty after the Government postponed a parliamentary vote on the Brexit withdrawal bill.
Members of both the BCC (British Chamber of Commerce) and FSB (Federation of Small Businesses) were reportedly “horrified” by this development and it is unlikely that many will have been impressed by subsequent reported Government contingency planning for the UK leaving the EU with no deal.
The eventual outcome is so difficult to predict that much business planning is on hold. This is supported by research by the BoE (Bank of England) who canvassed 369 companies about their pre-Brexit planning and found that the majority had made no changes to their business plans for the coming year.
However, this is a new year and hopefully the December shambles may have a positive side if it stimulates more SMEs to realise the need for planning.
The New Year is in any case a time when it is traditional for SMEs to refresh their business and marketing plans and while the uncertainty over the future has to be acknowledged, especially for those SMEs involved in Europe-wide, just in time supply chains, I would argue that this is a perfect time to accentuate the positive and focus on innovative thinking in SME forward planning. I would also argue that the world won’t collapse whatever the outcome and while most SMEs will be affected by Brexit, there will still be business to do.

Accentuate the positive in SME forward planning

It is often said that there are opportunities in the most negative of situations if only you look for them.
In December, the BCC issued a Brexit Business Checklist, which local Chambers have issued to their members as a downloadable PDF.
The checklist covers all the aspects that a business needs to consider in preparation for March 2019, but while it is prompted by the current uncertain situation it is also a comprehensive guide to all those aspects of a business that should be a part of SME forward planning at the start of the year.
It includes future staffing needs, issues with cross-border trade, including potential border delays and tariffs, taxation (particularly VAT), intellectual property, reviewing existing contracts, regulatory issues (such as GDPR) and competition.
So, for example, if business growth is part of your business plan and you know you may need more staff, perhaps rather than put off plans because you are uncertain about whether suitable people will be available when you need them, think about whether you can introduce systems such as automation or AI to work smarter rather than relying on finding more people.
Alternatively, how about taking on apprentices and training them for your needs. While reliance on short-term labour can provide flexibility and help deliver short-term profits, well trained and reliable employees are valuable when building a business that has a future.
Similarly, when reviewing contracts can you find suppliers of locally-sourced components or raw materials that do not depend on cross-border supply chains? Could you source supplies from outside the EU? Could you modify essential ingredients in your products that make you less reliant on overseas supplies?
UK businesses have historically been some of the most inventive in the world. Perhaps the ongoing political shambles will provide the stimulus for them to return to the forefront of innovation.

Tags Business Development, forward planning, Innovation

Banks, Lenders & Investors Cash Flow & Forecasting Finance General Turnaround

January Key Indicator – exchange rates and their impact on SMEs

Post author By a.withers
Post date January 3, 2019
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The exchange rate is the value of a country’s currency against those of others and the factors affecting this are many, especially in a volatile political climate, both globally and locally.
Among the influences are the interest rates set by central banks, inflation, a nation’s gross domestic product and trade balance, its debt and to a significant extent, the behaviour of politicians and governments towards both their own and competing economies.
Significant fluctuations in exchange rates, as has been seen over the last couple of years, then start to affect the confidence of investors, currency traders and businesses, increasing the volatility of currency values and stock exchanges.
Two obvious examples have been the plummeting value of £Sterling since June 2016, when the UK voted to leave the EU, despite occasional upticks as the negotiations over the withdrawal agreement dragged on.
Similarly, the engagement of the US President, Donald Trump, in imposing tariffs and instigating trade wars with other competing economies, particularly China, has arguably had a negative impact on both the value of the US Dollar and the performance of its own stock market.
Economic recovery, particularly in the UK and USA, has, in any case been sluggish in the decade since the 2008 global economic meltdown, which prompted central banks to set interest at very low rates in an attempt to protect their countries’ economies by stimulating investment and business activity.

A little history on exchange rates and currency values

Until the early 1930s, countries’ currencies were valued against the value of gold – the gold standard.
The quantity of gold held by a country determined the value of its currency and under the gold standard trade between countries was settled using physical gold. So, nations with trade surpluses accumulated gold as payment for their exports. Conversely, nations with trade deficits saw their gold reserves decline, as gold flowed out of those nations as payment for their imports.
The UK abandoned the gold standard in 1931 and the US in 1933, moving instead to the current fiat system, where currency values fluctuate dynamically against other currencies on the foreign-exchange markets. Fiat money is the currency that a government has declared to be legal tender, setting it as the standard for debt repayment. Essentially its value is based on market perception.
It has been argued that moving off an actual physical commodity like gold has made currency values and therefore exchange rates more vulnerable to manipulation by politicians and central banks, and therefore created a more volatile and vulnerable economic climate. This is where the market’s interpretation of politicians and central bankers is fundamental to currency values.

The effect of exchange rates on business

It is not only exporting businesses that are affected by exchange rates and currency values.
A good recent example has been the benefits to some UK SMEs, particularly in the service and hospitality industries, which during the summer of 2018 experienced something of a boom in tourism from a combination of a long season of good weather and the decline in the value of £Sterling making it cheaper for foreign tourists to visit the UK.
On the other hand, even small local SMEs whose businesses depend on selling goods and services where parts, components, food ingredients or raw materials come from overseas saw their costs rising because £Sterling’s buying power had been reduced in comparison with currencies in other countries.

Can SMEs protect their businesses from exchange rate fluctuations?

It can be harder for SMEs to protect themselves than it is for larger businesses, but the essentials for any business survival and growth are based on managing their costs and expenditure with strict and careful attention to cash flow which is best achieved by close scrutiny of monthly, or more frequent, management accounts.
If