Tag: Brexit

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

Do the Q1 insolvency figures suggest Brexit chickens coming home to roost?

Brexit chickensYet again, as in the last quarter of 2017, construction and retail were the top two sectors in the insolvency statistics for January to March 2018.
The first three months of 2018 were at their highest quarterly level since the same quarter in 2014, with a total of 4,462 companies entering insolvency, 3209 of them via Creditors’ Voluntary Liquidations (CVLs) accounting for 72% of all the quarter’s insolvencies.
Total insolvencies also represented a 26.2% increase on the same quarter in 2017 and an increase of 13% on the pre-Christmas October to December quarter.
Regardless of the excuses of the usual post-Christmas slump, and this year, the effects of the three-week weather event known as “Beast from the East”, it seems clear now that insolvency numbers are heading inexorably upwards as they were throughout 2017.
Equally clear, given the vast numbers of CVLs as a proportion of the total, it seems that company directors are no more optimistic about the future and are continuing to throw in the towel.

So, was “project fear” actually “project reality”?

In the aftermath of the June 2016 majority vote in the referendum to leave the EU, much scorn was heaped on the alleged scaremongering tactics of the Treasury and the then Chancellor of the Exchequer George Osborne for their warnings about the negative effects of Brexit on the UK economy.
While those supporting leaving the EU remain upbeat, the evidence is mounting that all is not well.
Consider the evidence.  Despite the improvements in global growth in the last two years the UK has dropped from being one of the top seven performers to the bottom and last week the ONS (Office for National Statistics) reported that UK growth for January to March had dropped to 0.1% from 0.4% in the previous three months.
The CBI interpreted this as the start of a prolonged economic slowdown and its survey of manufacturers, services and distribution companies led it to predict a near-standstill situation for the next three months.
In a pessimistic comment piece in Sunday’s Observer, the writer Will Hutton was of the opinion that the UK economy was heading for imminent recession, citing as examples the slumps in mortgage approvals (by 21%) and car manufacturing (by 13% for the domestic market and by 12% for export). These are significant examples given that the UK economy depends heavily on consumer spending and confidence, both of which have been in short supply for some time now.
While the pro-Brexit camp remain relentlessly upbeat about the UK’s economic future despite the continued opacity of the negotiation process and the goals, is it time to concede that the fears of those in favour of remaining in the EU are being realised and the Brexit chickens are coming home to roost?

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

How can UK manufacturers plan ahead given the current pre-Brexit uncertainty?

UK manuafacturer Port Talbot Steel worksIt has become fashionable in some quarters to downplay the importance of the UK’s manufacturing sector to our economy.
Yet the UK is the world’s eighth largest industrial nation, our manufacturing industry employs 2.6 million people and it contributes 11% of GVA (Gross Value Added as the measure of the value of goods and services produced in an area, industry or sector of an economy).
It accounts for 44% of total exports with SMEs doing particularly well representing 70% of business research and development (R&D) and providing 13% of business investment.
But no matter how innovative or agile, manufacturers still need a reasonable length of time to plan ahead as well as at least some degree of certainty.
Both of these seem to be in short supply at the moment.

What are the key challenges for UK manufacturers?

Manufacturing covers a wide range of products, from food to vehicles to machinery.
To keep their businesses healthy all manufacturers need to be aware of their competition, both at home and overseas.
A major concern is the control of cash flow, particularly costs, both payroll and raw materials or, if they are part of a supply chain, the costs of the components or ingredients manufacturers need to complete their part of the process.
In the run-up to leaving the EU, however, these issues have been far from straightforward.  Imported materials prices have risen because of the reduction in the value of £Sterling against other currencies, causing problems for the steel industry, for example.
Then there is the long-standing skills shortage, particularly for trained engineers, construction workers and even for low-skilled workers needed to pick and pack produce from farms, most of which have relied on EU workers. Already, we have seen the numbers of EU migrants reduced substantially over the uncertainty about their status post-Brexit. This has already threatened levels of manufacturing output.
While the Government would doubtless argue that this is in part being addressed by its Apprenticeship levy, the BCC (British Chambers of Commerce) has recently criticised the scheme’s implementation as unfit for purpose, noting that there has been a 24% drop in the numbers starting apprenticeships. In any case, it will take time before people are sufficiently well-skilled to be introduced into the workforce.
Equally, with the UK at near-full employment there is a question mark over whether there are even enough unskilled workers available.
It has been argued that adopting the latest technology and automation is the answer.  However, in some sectors, for a manufacturer to re-equip a factory needs considerable time for planning and to raise the finance, and again, the need for skilled people competent to run and maintain an automated production line. It is a big investment decision and one that understandably manufacturers are likely to be wary of in the current uncertainty.
Which brings us to the other dominant and vexed question of the moment and that is the as-yet undecided situation on tariffs, the customs union and the single market or completely free trade.
While remaining in the customs union with the EU after Brexit would protect exporters from tariffs it would also prevent them from reaching agreements with countries outside the EU. Completely free trade brings its own risks as to whether there is sufficient demand for UK products outside the EU. And then there is the potential loss of EU trade and most likely higher costs from tariffs.
Despite all these concerns, we are told that SMEs have been particularly successful in export markets over the last year or so. It is not, however, clear what impact this has had on overall volume.
Whether this will continue will depend heavily on the outcome of the negotiations over Brexit and the eventual agreements that are made.

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Banks, Lenders & Investors Cash Flow & Forecasting General

How crucial is SME growth to the UK economy post-Brexit?

SME growth and the challengesSMEs are often described as the backbone of the UK’s economy and it has been said that their future success will be crucial post-Brexit.
There are an estimated 5.7 million SMEs in the UK accounting for around 99% of all private sector businesses and providing 60% of UK employment. The CBI (Confederation of British Industry) believes that the UK’s economic growth depends on them.
Analysis by the Centre for Economic and Business Research has suggested that helping some 22,000 high-growth small businesses to flourish could close Britain’s productivity gap with its rivals.
On these figures one can conclude that SMEs are vitally important to the UK economy, both now and in the future, and especially their ability to compete in foreign markets to bring in the needed income to replace Europe once tariffs are in place.
Yet, it is also alleged that SMEs’ are not being given sufficient attention by the Government during the ongoing negotiations about leaving the EU.

What are the potential challenges facing SME growth post Brexit?

Investing in R & D is a significant challenge for many smaller SMEs.  Many rely on pooling their resources by using centralised research facilities for their sector. However, much of the current research funding comes via EU grants and such applications require considerable lead time.  This has already had some impact in SMEs scaling back their research plans, according to the CEO of the Materials Processing Institute.
A second worry is access to talent.  The European Start-up Monitor calculates that 51% of UK start-up employees come from outside the UK and the FSB has also highlighted that one in five small businesses rely on skills and labour from the EU.
A third concern is access to and ease of dealing with foreign markets. SMEs need help with investing in and establishing sales abroad, they are wary of the significant upfront costs and existential risks.
Then there is the SMEs’ position in many supply chains. Given the uncertainty about future post-Brexit tariffs it is worrying that the CIPS (Chartered Institute of Procurement and Supply) has calculated that 46% of EU businesses currently working with UK suppliers are in the process of finding local replacements.
On the other hand, the CBI has found from its own research that the supply chain ties between the UK and EU “could go in the other direction”. It has calculated that strengthening supply chains could add £30 Billion to the UK economy by 2025.
While questions have been raised about the UK SMEs’ preparedness for Brexit, it is difficult to see how they could make themselves readier given that there is so much uncertainty about the final outcomes of various aspects of the ongoing negotiations.
Plainly, the ability to innovate, and therefore access to R & D, to foreign markets and to attract the right talent are among the most crucial concerns.
But essentially, while there is a lot of growth potential in UK SMEs they are going to continue to be hampered in making plans unless more attention is paid both to their needs and their concerns than currently appears to be the case.

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Business Development & Marketing Finance General Turnaround

The pros and cons of Brexit for British farming

where next for British farmingWhile Britain is not self-sufficient in food, 60% of the country’s food supplies does come from British farms.
In terms of the country’s economic output farming accounts for just 1%, but from the farmers’ perspective the EU is its biggest market. Food and farming provide about 475,000 jobs in the UK.
Having said that, it is argued that much of the UK’s farming would not be viable without the subsidies provided by the CAP (Common Agriculture Policy), first introduced in 1973 when the UK joined the then European Economic Community.
Indeed in 2016, Government payments to agriculture totalled £3.1bn, more than half of overall British farm income, and yet in that year 26% of farms failed to break even.
There are those who argue that the subsidy has acted as a brake on innovation, preventing some farmers from getting out of the business and others from entering it. It has also, allegedly, inhibited what some see as necessary structural change and diversification.

Could Brexit provide a much-needed shake-up in British farming?

The negatives for farming of the decision to leave the EU have been well-rehearsed. Already there have been reports that the negative attitude to EU migrant labour has had an impact particularly on fruit and vegetable farmers’ ability to recruit enough seasonal workers to pick and pack crops when they are ripe, forcing them to leave produce rotting in the fields.
At the same time, farming faces constant pressure when selling in to the food production supply chain and to the supermarkets whose purchasing power keep prices down, almost to the point of being unable to make a profit on their efforts.
Equally, farmers argue that their current tariff free trade with the EU needs to be preserved if they are to survive.
There have been some initiatives to diversify the rural economy, to the extent that it is now not uncommon to see redundant barns on farms converted in to business centres for SMEs, some farmers have capitalised on the movement for fresh, chemical free and organically grown produce and plenty have set up their own farm shops. But the inadequacy of rural infrastructure, from reliable broadband to inadequate rural roads acts as a brake on such initiatives.
Similarly, there are other vested interests, such as those who want to preserve “the countryside” and regularly oppose planning applications for a change of use to rural buildings, that act as an inhibitor to innovation.
One thing is for sure and this is that there needs to be a new vision and more joined-up thinking about the countryside, especially as the CAP will be scaled down and eventually discontinued in the transition to Brexit.
The Government produced a Command Paper in late February with proposals on what next for the rural environment and its economy. Given its impact the consultation period seems limited with input required before May ahead of a new Agriculture Bill.
Under the proposals, up to £150m in support payments could be shifted from the richest farmers to environmental schemes after Brexit.  There are also suggestions for various ways of phasing out the CAP.
The aim, according to Environment Minister Michael Grove, will be to shift the balance between the environment, its protection and farming. But it also includes proposals for a national food plan, something that the NFU (National Farmers’ Union) has welcomed and incentives to farmers to pilot schemes to improve both animal welfare and to trial new technology.
Perhaps this is one case where Brexit will provide an opportunity for some innovative thinking that is arguably sorely needed.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Patience is wearing thin as business starts to confront reality

signposts which way to confront reality

Business activity has effectively been just ticking over with investment at a low ebb since the outcome of the June 2016 referendum to leave the EU.Business dislikes uncertainty and tends to retreat into its shell when faced with no clear way forward, but sooner or later maintaining the status quo risks a slide into genteel decline, as we have mentioned before in previous blogs.
While the Government repeats its determination that by the end of March it will trigger Article 50 to start of the process of leaving the EU, the bill to approve it is still grinding its way through the houses of Parliament.

Planning ahead means confronting reality now rather than putting it off

Meanwhile, with still no clear idea of what the “red line” terms for negotiating trade agreements will be, business seems to be running out of patience.
In the last two weeks, there have been a number of indications of the way things are moving.
Brexit Secretary David Davis admitted that it was unlikely that there would be a noticeable reduction in immigration figures for several years after leaving the EU, openly acknowledging how much the UK economy depends on European and other nationals to work in certain sectors, noticeably farming, construction, engineering and the caring professions.
At the same time the Prime Minister’s continued prevarication about EU nationals’ residence rights has apparently been too much for some, and, according to a report in the Independent, some 100,000 EU citizens had left the UK in the three months post-referendum, while more recent figures showed that 40,000 fewer people had come here to work.
This has prompted restaurant owners to delay or abandon plans to open new restaurants, particularly in London, reports the British Hospitality Association, but also recruitment difficulties are being reported by farmers across East Anglia, Kent and the Midlands.
It is not only in hospitality and farming that patience is wearing thin. This week it has been reported that BMW is planning to produce the Electric Mini away from the UK, probably in Europe, and that an exodus of some businesses from one of the country’s most vibrant and pioneering company sectors, “fintech” or financial technology, was on the point of getting underway.
The CEO of PRRO Group, one of the fastest-growing fintech companies, Simon Black, pointed out that moving this kind of business and getting through all the required compliance and licensing processes was a complex six-month process.
Waiting until the outcomes of Brexit trade negotiations were known, a minimum of two years hence, before starting the move was therefore not a realistic option.
It is a safe bet that once some businesses start thinking this way, momentum will build up and others will join the exodus as they confront the reality of what they might lose by waiting.
While planning for UK to leave the EU is planning for the inevitable, planning for the future of the EU is another matter that should also be considered.

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Business Development & Marketing Cash Flow & Forecasting Finance General Uncategorized

BCC Annual Conference 2017 to ponder the future for UK business

Breaking the wall K2 Partners Business Blog

The pre-Brexit challenges facing UK SMEs, which predominantly focused on uncertainty about their future, have been compounded by further uncertainty about their future once the country has left the EU.
No business is happy with uncertainty when it needs to make decisions about investment, growth and employment. But that, unfortunately, is the current situation and likely to remain so for some time yet.
Businesses face the challenge of making decisions about where their future markets are likely to be and whether they should invest in growth or not. Another worry is not knowing what the terms of any deals might be in the future and how this might affect arrangements already made.
So, at the moment, many UK businesses are stuck in a spiral of genteel decline; they are making profits but not investing in their future, neither in people nor in equipment, new markets nor product development.
Already, employers are struggling to recruit the people they need, according to a survey of 1000 employers, released last week by the Chartered Institute of Personnel Development and the Adecco Group. The numbers of EU nationals coming into the country to work has been slowing and employers fear that some existing EU employees are considering returning to their home countries or working elsewhere.  Manufacturing, healthcare, retail and hospitality have been among the worst hit, the survey found.
Without investment in the latest technology and in research and development the danger is that UK businesses will lose their competitive edge in fields where they are currently leading.

What businesses will want to hear

The British Chambers of Commerce (BCC) annual conference is at the QEII Conference Centre in Westminster on February 28 and there are three topics for debate. These are:

  • Growing Business in the Regions and Nations
  • Brexit: Turning Uncertainty into Opportunity
  • Keeping the UK Competitive – vision 2030

While businesses from SMEs to larger corporates will be keen to hear more on the priorities in the Brexit negotiations, given that the deadline for triggering Article 50 is not until the end of March there is unlikely to be much information on this.
The chronic and long-standing imbalance between London and the rest of the country is also likely to be a significant concern to the BCC membership, who are present in every county throughout the country, and they will want reassurance from BCC National that their concerns will be represented and their voices heard.
Skills shortages, training, and perhaps what will happen about business’ ability to recruit from within the EU and elsewhere may well be high on the wish list as part of the discussion in the final debate of the afternoon on UK competitiveness.

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

There are still more questions than answers on Brexit for UK SMEs

More Questions K2 Partners Business Blog

The Supreme Court ruling against the Government that meant Parliament had to be allowed to vote on both triggering the process has at least moved things forward a little.
Last week saw a majority of MPs voting to support triggering Article 50, the formal start of the process of the UK’s leaving the EU. There are hundreds of amendments proposed at Committee stage but it is likely that the legislation will be passed by mid-February and the process begun by the end of March.
Thursday also saw the publication of a white paper outlining the main points of what the Government proposes to negotiate.
But negotiation will still be a lengthy process, an arguably optimistic minimum of two years, and that means considerable continued uncertainty for UK businesses of all sizes, from SMEs to the larger corporate sector.

What have we learned from the White Paper?

There will have to be several separate pieces of UK legislation in addition to the formally negotiated treaty detailing the relationship between the UK and EU for trading relations.
These will include a Great Repeal Bill to transfer current UK-adopted EU legislation on such things as workers’ protection and rights into UK law. So for UK SMEs no changes to current employment law, for the moment at least.
Similarly, there will have to be legislation on immigration and on customs arrangements.
The White paper also states that “there may be a phased process of implementation”, to give companies and individuals time to plan and prepare”.

In other developments

This can only be a snapshot in an unpredictable situation but in the last week the Bank of England has revised its prediction for UK growth in 2017 up slightly to 2% while the National Institute for Economic and Social Research (NIESR) puts its forecast figure at 1.7%.
Inflation has started to kick in. Manufacturing input costs as measured monthly by the Markit/CIPS Purchasing Managers’ Index showed the biggest increase in January to manufacturing input costs since records began in 1992 – up by 12% at 55.9, well above the 50 benchmark that separates growth from contraction. This has forced manufacturers to increase prices significantly and will impact on UK SME’s purchasing costs.
In the meantime, there have been a couple of encouraging developments that might help businesses to make their case more forcefully as the Brexit negotiations get under way.
Firstly, during the Article 50 Second Reading debate former Chancellor George Osborne criticised the Government for putting more emphasis on immigration than on the needs of business.
Secondly, it is a positive sign that, given the numbers of EU workers on whom UK SMEs depend in the face of a skills shortage, the All-Parliamentary Party Group (APPG) for Migration has launched an official inquiry to investigate immigration “with a focus on the concerns of small and medium-sized enterprises”.
And finally, a comment piece in the Independent by James Moore argued that “the only people who can take the Government to task over Brexit are the business lobby”. He argued that businesses need to make the case forcefully and repeatedly “that the Government’s current approach to it will destroy jobs, harm the UK’s economic prospects and make everyone poorer” and to push hard for the “least worst option” in the negotiations.
Clearly, there is a long way to go before there is clarity for UK SMEs but there are at least some voices pushing the business case to the Government.

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

What next for business insolvencies in 2017

solvent or insolventCompany insolvencies for the whole of 2016 rose slightly, subject to a caveat from the Insolvency Service.
The latest results, published on Friday, 27th January, showed an annual increase of 12.6% on the year before, but the service said that this was “due to 1,796 connected personal service companies (PSCs) entering creditors’ voluntary liquidation (CVL) in Q4 following changes to claimable expense rules.”
Excluding these actually meant that insolvencies for 2016 had risen by 0.3% compared to 2015. The rise was driven by a rise of 1.1% in CVLs and a 0.7% rise in compulsory liquidations. All other types of insolvencies fell.

What was the problem with payment via PSCs?

It was estimated that the Government was losing around £400m of tax revenue because of the PSC set-up governing expense rules for freelancers and contractors.
The regulations were changed in the Spring 2016 Budget to eliminate a loophole in the HMRC IR35 provisions that enabled such workers to take their payments as dividends and a minimum wage from specially set up personal service companies thus enabling them to minimise their tax payments.
It was a system widely used by everyone from entertainers, IT contractors and public sector employees.  The government argued that they were not contractors at all but “disguised employees”.
The most vulnerable sectors in the UK economy and the outlook for 2017
Sector breakdowns for insolvencies published by the Insolvency Service lag behind by one quarter so the most recently available information is up to the end of Q3, September 2016.
In the 12 months to the end of Q3 2016 the construction sector suffered the highest number of new insolvencies, although the figure was down slightly at 0.05% on the 12 months ending in Q2 (June 2016). Next highest was wholesale and retail trade & repair of motor vehicles and motorcycles sector.
These, together with administrative and support service activities, accommodation and food service activities and manufacturing remain the most vulnerable sectors of the UK economy.
This week, business recovery practice, Begbies Traynor’s latest Red Flag research revealed that more than 275,000 companies were showing signs of “significant” financial distress at the end of last year.  In the final quarter of 2016 it found 276,518 businesses were experiencing ‘significant’ financial distress – that’s up 3% compared with the same time in 2015 and of these 91% were SMEs, almost a quarter of them in London.
There are signs that the volatility of £sterling and its effects on import prices for food, oil and raw materials are already stoking up inflation with no likelihood of any reduction in pressure on prices while Brexit uncertainty is ongoing and the likelihood is that there will continue to be an increase in insolvencies in throughout 2017.

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

What factors may affect your plans and any changes to your business model?

fundamental change to business planThroughout September our blogs have focused on the considerations and factors that should be taken into account in preparing strategies for business change.
Some final thoughts before October, when our blogs will focus on the next step, of implementing the plan and making any changes.
 

Fundamental change or partial adjustment?

For some businesses, a review may identify the need for fundamental change but for most it will identify areas for improvement and most likely cost savings.
Those facing fundamental change are likely to be the result of internal factors such as resource or capacity issues or external ones, such as markets disappearing due to the EU referendum, or costs increasing due to the impact of exchange rates.
In this scenario the business will need to transform itself with a completely new offering.  A good example is the recent closure of all the BHS stores and the subsequent announcement of plans to set up an online BHS shop instead.
Another example is that following the Brexit decision, businesses that sourced their manufacture overseas may now have found that it is actually cheaper to manufacture at home to take advantage of the lower export costs following the changes to currency exchange rates, particularly £Sterling, making UK export prices more competitive.
In this sense, UK could be about to reverse the trend of the last 30 years, of closing down factories to outsource the manufacturing of goods which can now be made more cheaply at home. In the UK, if energy prices and the value of £Sterling remain low on-shoring manufacturing would make sense, but it will require significant investment in manufacturing capacity and the training of labour.
Essentially, therefore, reviewing your current business model is not only about understanding the current and likely future of economic conditions, but also what your business is selling and asking difficult questions about changing customer needs and behaviours. Any delay in making difficult decisions can leave a business behind those who are more proactive.
While transformation may be needed by most businesses, some parts of the business will need attention to remain competitive.
Continuous improvement, flexibility and agility make sense, given the opportunities and competition of a global marketplace, and particularly in the aftermath of the EU referendum.

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

Achieving a positive Brexit outcome will need realism and patience

keep calm and stay positiveIf ever strategic planning for the longer term was needed, it is now as a consequence of the Brexit decision in June’s referendum.
Arguably the short term approach by directors, investors and lenders has been a feature of modern business life ever since the Thatcher era of the Big Bang computerisation of the stock market and the advent of free-floating currencies, as Andrew Marr suggests in his book A History of Modern Britain.
This short term approach is reinforced by the calls to “get on with it” that have been escalating both in the UK and from various parts of the EU.

Realism and patience

When the decision was made the world was never going to collapse nor was Britain going to enter into the darkest recession.
However, what we did do was communicate to all those who do business with Britain that the country will not be in the EU in the future regardless of the outcome of negotiations.
The adjustment of foreigner investor’s perceptions of Britain has already begun.
If Junker and the French have their way, we British will be taught a lesson that will translate into significant economic pain.  However, it is also true that all those who are current investors in Britain will not withdraw their investments. Well, not overnight.
But anyone considering new investments with the objective of unfettered trade with the EU cannot now choose Britain, at least not until the trading terms have been agreed.
Those who are saying “it’s all going to be all right” are deluded and ignoring the monumental task needed to restore stability.
While the focus has been on a post-Brexit trade agreement with the EU, all our current trade agreements with the rest of the world are EU ones. Until new ones have been agreed with each and every major country, uncertainty will persist and that will translate into a lack of decisions about investment. This is likely to take a very long time.
Despite the lack of agreement for post-Brexit trading, non-EU countries and businesses that have a productive and good working relationship with Britain will not risk jeopardising that regardless of EU politicians’ desire to teach us a lesson.
Patience and strategic relationships will be key to our success as a trading nation post Brexit.
We might remind ourselves of those courageous pioneers who built the British Empire 200 years ago. It was essentially a trading network built on relationships forged by foreign travel. Now is the time to get out of our comfort zone and make friends with the rest of the world.

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

Brexit musings

keep calm and stay positiveThe first Markit/PMI (Purchase Managers Index) post-referendum composite results have now been published, showing a downturn in both business confidence and activity to below the 50 benchmark in Services, Construction and Manufacturing to 47.3 from 51.0 before the vote.
Despite the doom-laden reactions from commentators it is important to prevent sentiment falling off a cliff and making recession a self-fulfilling prophecy.
So it cannot be said too often that it is early days yet and growth is still being predicted for the UK economy, albeit at slightly lower levels, as this example illustrates.
Building supplies company Travis Perkins is due to publish its half year results this week and has issued a profit warning. Nevertheless, its pre-publication statement said: “In our view it is too early to precisely predict end-market demand and we will continue to monitor the lead indicators we track and will react accordingly.”
The holiday season ebb in business activity is a good time to pause and clarify where we are now, as individual businesses and more widely.

What was really at stake in the referendum?

Arguably this should have been properly highlighted and debated before the vote.
The three variables a nation can have are Sovereignty, Democracy and Globalisation and essentially, whether people realised it or not, the referendum involved a decision between the benefits of Sovereignty versus Globalisation given that we have ballot box Democracy in UK.
The most difficult to assess is Globalisation and its benefits. Essentially it involves the free movement of goods, services and people, which reduce costs, improve wealth and promote security through interdependency. These are difficult elements to quantify but most obviously benefit commercial enterprise and the metropolitan ‘elites’. After years of war and protectionism, this was the underlying philosophy behind the EU.
However, while Globalisation may have broadly improved people’s living standards in the EU, protected their employment and improved their citizenship rights, a majority of voters did not feel they had been beneficiaries. They would also seem to resent the uneven distribution of its benefits.
In the UK this has affected not only the low paid and low skilled but also the middle classes, many of whom believe they are paying for the excesses of the decision makers through the various austerity measures that have been implemented by government.
So when it came to the vote, Sovereignty became the priority and clearly the Brexit majority wanted to see not only a different form of “Globalisation” within the EU but also greater security and prosperity for those who felt left behind.
Where does all this leave the UK and particularly businesses?
We have said it before but it bears repeating in the light of the Travis Perkins statement above that Brexit presents plenty of opportunities to negotiate and create different ways of operating in a global market such that the benefits are more widely distributed. Indeed, the EU has been becoming more protectionist so that UK will be able to do its own trade deals with non-EU countries.
But it will not happen if the UK and other countries go down the road of pessimism, isolationism and protectionism. The opportunity now is to truly embrace Globalisation, to embrace its benefits and trade with the whole world, not just the EU.

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

Access to skilled workers and the EU referendum

worried businessmanA key issue for business in the June referendum on whether the UK should remain in or leave Europe is to consider the consequences that a “leave” vote could have on the free movement of labour.
Restricted access to skilled workers in the absence of suitably qualified UK candidates could have a big impact on small business’ ability to prosper and grow.
The two main issues are availability of skilled people and the cost of wages.
At the moment UK businesses have access to skilled people from across the EU and this has been crucial to many firms, in particular engineering firms and metal fabricators, where a UK shortage has meant having to recruit experienced engineers and welders from former Soviet bloc countries in Eastern Europe.
There have been limited Government initiatives to boost apprenticeship numbers – the latest being to impose a 0.5% apprenticeship levy from 2017 on the payrolls of all businesses with a wage bill of more than £3 million. Others include offering small grants to smaller businesses to encourage them to take on apprentices.
However, after years of a lack of investment in training and skills, reducing the shortage of suitably qualified UK staff will take years and that assumes a serious commitment to training a future work force.
In an extremely turbulent and competitive global economic market businesses cannot wait that long.

Regulations, visas and a restricted labour market?

A second consideration is what would happen if, in the event of a majority vote for Brexit, recruitment were to be somehow restricted to UK natives in such a way that companies would have to provide evidence of a lack of suitable candidates before being permitted to recruit overseas.
Again agile and responsive 21st businesses may not be able to wait that long.
The scarcity of skilled candidates in UK means that businesses will find themselves competing for them which in turn will drive up wages putting further pressure on already tight margins.
The UK is still not investing anywhere near enough in training and skills for its own people. There is no denying that we have centres of excellence in universities and enterprise areas that can currently access capabilities from Europe, but these are not enough to support a dynamic and efficient economy.
Brexit would most likely result in businesses being constrained by having limited access to trained and skilled staff which in turn will push up wages for those with the skills and the necessary gap will not be filled fast enough to prevent a decline in capacity. Essentially the skilled work will move outside UK, to where the skilled workers are.
(Image courtesy of Vlado at FreeDigitalPhotos.net) 

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

Businesses continue to lack confidence

worried businessmanProductivity is not improving, the global economy is still flat and it is no surprise that UK businesses, particularly SMEs, should be uncertain in the future.
The situation has been compounded by the government’s announcing a referendum on whether the country should remain in the EU or leave. This, too, has added to the uncertainty. We will look at specific Brexit issues in coming blogs.
However, the question is whether the uncertainty will diminish with the outcome of the Brexit or not vote on June 23.
Or is there something more going on here?

Have we lost the ability to make decisions?

Businesses can’t just sit and wait, they have to get on with things and risk being wrong.
But arguably the rise in the level of uncertainty has contributed to a lack of confidence and an inability to make decisions.
Is it because there is an increased desire to make decisions that are 100% right?  Why should this be?
It’s not helped by the fact that banks are paralysed by their inability to support small businesses.  They, too, have become risk averse.
Also we are daily bombarded by statistics about the state of the economy, of the world, of just about everything and this can build up a picture that adds to the level of uncertainty, where doing nothing becomes the default position.
Perhaps also the rise of the “blame” and litigation culture plays a part. If something goes wrong we want to blame someone and therefore increased the fear of making a wrong decision.
So lack of confidence and putting off decisions are not necessarily only about the uncertainty over the outcome of the EU referendum.
It may be that British people have lost their edge when it comes to having the guts about enterprise. Perhaps we need to re-learn the art of making a decision in an uncertain world.
(Image courtesy of Vlado at FreeDigitalPhotos.net)

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Which way on the EU for SMEs?

Within days of the UK election results the advantages and disadvantages of EU membership are already being discussed by businesses.
While many businesses have signalled that “Brexit” would be a bad thing for them and for the UK economy given that the EU is our largest trading partner, some have begun to disagree.
Chief among them are the chief executive of JCB, Graeme Macdonald, who is quoted in the Guardian this week as saying that the UK is far too important a trading nation to be simply pushed to one side. Is he right or is this hubris?
Previously the newly-appointed Business Secretary Sajid Javid and the newly-appointed commercial secretary to the treasury Jim O’Neill, the former chairman of Goldman Sachs Asset Management, have both opined that the UK has nothing to fear from leaving the EU.
O’Neill, in fairness, has also said that staying in the EU would be preferable but he is also a believer in the opportunities that will be available to UK businesses from the BRICs (Brazil, Russia, India and China).
While it may be OK for JCB who already sell outside Europe, what does all this mean for the UK’s SMEs? For the time being, it’s likely to mean continued uncertainty when planning their future, not least because of the scarcity of funding for overseas marketing or for the R&D necessary to compete in international markets.
Much has also been made of the burden of Euro red tape holding back SMEs, though rarely is there any detail on what this means. Presumably it includes employment, Health and Safety and banking regulation.
What does Red Tape mean to your business and what would make life easier?

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