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

Is fear for the future the explanation for a rising numbers of insolvencies?

does fear for the future rule your business decisions?The increased number of insolvencies, largely due to CVLs (Creditors Voluntary Liquidations) between July and September this year is a worrying, but hardly a surprising, trend.
There has been a gradual upward trajectory in insolvencies for much of 2018 but it seems to be accelerating. The latest figures, for Q3, show an increase of 8.9% on the previous quarter and an increase of 19.3% compared with Q3 in 2017. CVLs make up the bulk of the quarter’s insolvencies at 71.6% of the total, that is 3,083 out of 4,308 and the highest number of quarterly CVLs since January to March (Q1) 2012.
As for much of the year the construction industry had the highest number of insolvencies in the 12 months ending Q3 2018, followed by the wholesale and retail trade and the repair of vehicles industrial grouping.
For some time now, it has been clear that businesses have been holding back on investment for growth given the climate of uncertainty that the economy has been in for two years now, and yes, many cite the lack of clarity over the outcome of the Brexit negotiations as their reason for holding off.
My regular readers know that I believe no SME business can afford to stand still without risking eventual failure and that in difficult times I advise focusing relentlessly on cash flow as well as a regular review of margins and Management Accounts.
Nevertheless, it is understandable that there is little confidence in the future after two years of tedium, and, some would argue, incompetence in the negotiations and it may be that the rising insolvencies are a sign of businesses – and creditors – running out of patience or room for manoeuvre.

The signs for the future are not good

In the last week the CBI (Confederation of British Industry) quarterly survey has revealed that smaller British manufacturers expect their output to dip for the first time in seven years during the next three months. It found that order books are struggling as Brexit approaches, with firms reining in their investment plans as a result. Optimism about export prospects for the year ahead is also at its the weakest level since April 2009.
Lloyds Bank’s monthly barometer of business confidence has also shown a marked slide particularly among smaller SMEs and the net positivity balance had fallen by 9% to -7%.
While the latest IHS/Markit purchasing managers’ index (PMI) for the construction industry improved to 53.2 in October a slowdown in housebuilding across the UK and in new orders is weighing heavily on construction, proof, if any were needed, that in this sector particularly survival depends on growth.
On top of this has come the news that two European suppliers of car parts, Schaeffler and Michelin, announced plans to close UK factories, although both deny this has anything to do with Brexit. Instead they cite dwindling demand for smaller tyres.
As reported in the Evening Standard yesterday, research by Populous World has predicted that around 12,450 smaller businesses in London and the South East may go under if there is a no deal Brexit, with the figure at 7,900 failures even with a deal.
As if that were not enough, there will be more pressure on struggling businesses following the restoration of HMRC to preferential creditor status in last week’s Budget, albeit that this is restricted to recovery of unpaid PAYE, CIS and VAT as the taxes collected by businesses on behalf of HMRC.
Given all the above and that HMRC has become increasingly aggressive in seizing assets and in litigating to recover money owed and, as calculated by Pinsent Masons, that the average length of cases of unresolved tax battles going through the courts is now 39 months, it is perhaps no surprise that creditors are running out of patience and CVLs are climbing rapidly.
Many lenders, creditors and even shareholders would appear to be pursuing a strategy of ‘better some cash now rather than waiting for more later’. Is there a real fear of worse to come?

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Business Development & Marketing Finance General

Skills shortages and recruitment problems for SMEs amid ongoing Brexit uncertainty

skills shortages and recruitment problems not just for fruit pickersI try to avoid the dreaded “B” word in my blogs but on this occasion, I can’t avoid it as the chorus of business voices highlighting skills shortages and recruitment problems grows larger and louder.
It is no good for Government to assert that it will all be fine once negotiations on the UK’s leaving the EU are concluded when the situation is no clearer now than it was when all this started almost two years ago.
Somehow, businesses need to carry on in the interim as well as planning for the future.  Some things just cannot wait and high on the list is where and how they are going to source the people they need at all skill levels, whether or not they trade abroad.

Some facts about skills shortages and recruitment problems

Firstly, the most recent complete set of immigration figures, published by the ONS (Office for National Statistics) showed that, in 2017, more EU citizens, 139,000, left the UK than came here to work, 101,000. This was the lowest level for five years.
The independent “think tank” Global Futures calculated that the fall in immigration since the decision to leave the EU was already costing the UK public finances more than £1 billion per year and research by Scott-Moncrieff found that 51% of SMEs put Brexit at the forefront of their worries, with even those not trading abroad linking it to a decline in spending and to skills shortages.
This translates on the ground to data from the West Midlands Chambers of Commerce revealing in their quarterly report that 53% of their members were reporting recruiting difficulties and YouGov figures reporting that 23% could not retain EU nationals.
In East Anglia, the business section of one regional paper highlighted interviews with SMEs, one of them with a small local electrical contractor who had been searching fruitlessly for qualified new recruits for five months.
Equally, there are regular reports of a shortage of nurses, doctors and other health care professionals in the NHS and care homes too are finding it hard to get staff.
I have noted in past blogs the sectors where qualified people have been in short supply for many months, including in construction, the Tech sector and in engineering. The Daily Telegraph has calculated that half of all postgraduates skilled in AI had migrated overseas, 33% to leading US tech firms, 11% to North American universities and 9% to smaller US businesses – a new “brain drain” in the making?
As far back as July the Independent was reporting that six in 10 businesses have had to spend money on extra incentives, pay rises and bonuses ranging in value between £5,000 and £100,000 to persuade skilled EU workers to work for them.

What action has there been to address skills shortages and recruitment problems?

Doubtless the Government, if challenged, would say that it is listening to businesses although the message does not seem to be getting through or is being treated with some scepticism.
Given that the UK has near-full employment, even unskilled workers may be able to command a premium and there have already been warnings from farmers that recruiting enough seasonal fruit and veg pickers is a serious problem.
In late August the Home Office announced that it had developed an online “toolkit” to help UK employers to register EU citizens with a new immigration status following Brexit and to help those citizens to get their new immigration status. This has yet to be tested and given the government’s less than stellar track record on commissioning new IT solutions it remains to be seen whether it will be user friendly.
Then there is the apprenticeship levy and the Government’s target of having 3 million new apprenticeships in place by 2020. This has hardly been a resounding success with the numbers of places having slumped over the nine months of the 2017-18 academic year by 34% compared to the previous nine months. Last week the FSB (Federation of Small Businesses) revealed that there had been a further slump in new apprenticeships in the year to June, down by 28%.
Not surprisingly, the FSB, the CBI (Confederation of British Industry), the IoD (Institute of Directors) and the BCC (British Chambers of Commerce) have all called for the scheme’s urgent reform.
The question is whether the Government will do more than “listen” to business concerns and actually do something practical that works.

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Banks, Lenders & Investors Business Development & Marketing General

Brexit uncertainty has gone on too long for UK SMEs

brexit uncertainty and migrating businesses
Will Brexit uncertainty turn businesses into migrating birds?

In the days running up to last Friday’s cabinet meeting at Chequers many of the UK’s largest businesses were warning that complete lack of agreement or clarity on the details of the Brexit negotiating position meant that time was fast running out for them to plan their future operations.
Businesses, both large and small, were clearly also less than impressed by the Government’s lack of attention to and understanding of their need for clarity so they can make practical plans.
So, while I have avoided commentary on the tedious, ongoing Brexit saga as far as possible, for once I am focusing on it, not least because of the events of the last few days.
After the Chequers meeting, it seemed that at last there was a “third way” proposal over which there was cabinet unity.  The details are expected to be published later this week.
But it seemed that at last business concerns and the future of the economy were finally front and centre in the proposals and this was tentatively welcomed by businesses.
By Monday, however, all was up in the air again as the UK’s main negotiator, David Davis resigned, along with another leading negotiator Steve Baker, and the chorus of disagreement from the usual Brexiteer suspects in Parliament was growing louder. And then Boris!
As an aside I can’t help thinking about petulant children who don’t get their way and the lack of leadership by those seeking to distance themselves from an outcome that was always going to be based on compromise.

Why businesses, particularly SMEs, urgently need an end to Brexit uncertainty

The key issues for SMEs, many of which are involved in pan-European supply chains, are clearly what the eventual outcome will do to costs and access to various components or raw materials not to mention access to skilled labour and markets for our goods and services.
It is not only the large supermarkets that operate a “just in time” model for supplies, so do many manufacturers. The model helps to reduce overheads and the costs and cash tied up when holding a large amount of reserve stocks, not to mention the warehousing needed.  However, it also relies heavily on reliable, prompt and efficient delivery.
If the eventual agreement on import, export and customs arrangements cannot guarantee the same level of efficiency it is likely that businesses may have to move to Europe if they want to survive.  Many are already considering doing this.
What the UK Brexit negotiators do not seem to have taken on board is the time most businesses will need to set up and carry out such a relocation, plus the effect it might have on job availability in the UK and on the UK economy.
Sourcing skilled workers in some key sectors has for a long time been a problem in the UK and the gap had been filled by workers coming into the UK, particularly in the construction, fabrication, engineering and IT sectors. Here too, uncertainty has taken its toll.
However, by the end of last week it seemed that these concerns were reflected in the new proposals and at last the concerns of eventual customs arrangements had been addressed along with the possibility of “special” arrangements to allow EU workers to be able to work in the UK post Brexit under similar arrangements as previously.
Of course, thanks to yesterday’s developments the fog of Brexit uncertainty could descend yet again and then there are the “unknown unknowns” of a looming US president-inspired global trade war, admittedly nothing to do with Brexit but far from helpful.
It would be no surprise if SMEs and larger businesses alike decided enough was enough and started the process of moving elsewhere. Are you likely to be one of them?