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

Key Indicator – the state of UK business activity

UK business activityUK 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.

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

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

insolvency figures and lifebeltsThe 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.”

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

Recession, imminent or not is it time to ban the word?

recession storm cloudsRecession is a word that has immense power, striking apprehension into the hearts of businesses, politicians and consumers alike.
Talk of a recession can also precipitate the very economic conditions that are so feared and it is worrying that the word is currently appearing regularly in the daily news media.
But is recession a useful concept especially in the context of increasing pressure to move to sustainable, rather than perpetual, economic growth, in order to combat climate change and global warming?
Should we keep growing?
The generally-accepted definition of a recession is, according to the Business Dictionary: a contraction in the GDP for six months (two consecutive quarters) or longer. It goes on to say: “Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression. Although [they] are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes.”
So, by these measures, the UK has its highest ever employment and rising wages and is not in recession. On the other hand, it is suffering from falling retail sales, apparently now online as well as on the High Street, as a result, we are told, of declining consumer confidence and worries over future job stability.
Clearly, an imminent recession has been a worry for some time, at least as far as the media has been concerned.
Over the course of the last two months, every time the latest confidence and productivity figures have been announced it has prompted speculation.
In early September, the Sunday Times reported data from MakeUK and BDO who both indicated falls in factory output and from the CBI (Confederation of British Industry) whose latest growth indicator showed a continued decline in services and distribution volumes.
Later in the month these same two bodies were reporting that domestic orders in the UK manufacturing sector had declined in the third quarter for the first time in three years as well as reporting weakening export orders.
Purchasing managers’ monthly indexes from IHS Markit/CIPS throughout the month showed declining confidence in the services, manufacturing and construction sectors.
And so it went on until by the start of October, the Guardian was claiming that a recession was on the way.
In view of the persistent pessimistic data one might wonder how we are not in a recession.
It might be explained by the alternative views based on other data. For example, the Economist carried an opinion piece that pointed out that the last two recessions, between August 2000 and September 2001, and then in 2008, had been as a result of “epic financial crisis” accompanied by stock market crashes.
It then argued that a recession was as much a matter of mood as it was of any reliable economic signals and signs.
Meanwhile on September 27 David Blanchflower, Professor of economics at Dartmouth College in the US and member of the MPC (Monetary Policy Committee at the Bank of England) from 2006-09, argued that the UK was already in recession, even though the conditions for the technical definition had not yet been fulfilled.
Ah, so it is down to the definition of recession. Is a recession now like news: fake or real? And what is a technical recession?
Blanchflower based his argument on the fall in “how businesses are doing on turnover, capacity constraints, employment and investment intentions” arguing that since GDP figures are actually regularly revised after their initial announcement they cannot be used as an indicator of recession.
Confused? That’s no surprise!
This is why I am suggesting that the widespread use of the term is less than helpful to businesses trying to navigate their way through the admittedly uncertain landscapes of imminent Brexit, global trade wars and political mayhem.
They would be much better served by focusing on their cash flow, balance sheets, growth plans and other data in order to remain sustainable and profitable, whatever the surrounding, feverish “mood music” of recession talk.

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

January Key Indicator – exchange rates and their impact on SMEs

exchange rates are no longer measured by goldThe 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 it is at all possible to manage cash flow in a way that a business can create a contingency reserve this will provide some measure of protection to a downturn in the exchange rate.
For those that have to source supplies from overseas, hedging against cost increases due to exchange rates can be done by negotiating a forward contract in your own currency based on a set price with the supplier or at least fixing the price with purchase of a forward exchange rate. This may mean missing out on future changes in the exchange rate that might benefit the SME buyer, but will provide some degree of certainty when planning ahead.
Another option may be to include clauses in your contracts which allow you to renegotiate prices should the exchange rate change significantly within an agreed period of time.
Wherever possible try to avoid the transaction fees charged by banks for making international payments. Some money transfer specialists offer an alternative, FCA regulated, service in a free multi-currency account that lets businesses hold over 40 currencies, and switch between them using the mid-market exchange rates to make payments.
While the risks of fluctuating exchange rates can be greater for SMEs with fewer reserves to fall back on planning and good communication can help to mitigate at least some of the risks.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

December key indicator – the UK economy at the end of 2018

storm clouds over UK economyAs the end of the year approaches, this month’s Key Indicator looks at the state of the UK economy.
Assessing an economy is not only about facts and figures, it is also about perspectives over time and the effects of business sentiment, and there is little doubt that the country has been facing an uncertain future for the past two years.
Since the Financial Crisis of 2008, the UK economy dropped from being one of the fastest growing of the G7 economies (UK, Canada, France, Germany, Italy, Japan and the US) to being the slowest by the first half of 2018.
The UK economy shrunk by more than 6% between the first quarter of 2008 and the second quarter of 2009 and took five years to get back to the size it was before the recession. Had the pre-2008 momentum been maintained it has been calculated that productivity would have been 20% higher than it actually was at the end of 2017. The size of the UK economy has increased by just 9.7% since its pre-downturn peak according to the ONS (Office for National Statistics).

The impact of confidence – or lack of it – on the UK economy in 2018

It is generally accepted that from large corporates to SMEs, businesses dislike uncertainty since it has a significant impact on their ability to plan ahead with any confidence.  Confidence, or lack of it, also affects the behaviour of investors and lenders when considering investment in growth. This can be seen partly in the behaviour of the stock market, which has been decidedly volatile in the last two years, thanks to three main factors: the ongoing opacity of the Brexit outcome, the potential for a change of government to one that is viewed as anti-capitalist, and the potential consequences of a US trade war with China.
The rapid upturn in markets following the announcement after this weekend’s G20 summit of a 90-day suspension of tariffs to allow for US-China trade talks is a good example of volatile market sentiment.
PWC (Price Waterhouse Cooper) analysis reflects some of this sentiment in its most recent assessment of the UK economic outlook, which expected growth to remain modest at 1.3% in 2018 and 1.6% next year.
IHS Markit/Cips monthly snapshots also reveal levels of confidence among different sectors of the UK economy. Its most recent Services sector (retail, hotels and transport) confidence indicator had dropped from 53.9 to 52.2.
A Dun & Bradstreet survey of SMEs in November also found that 40% felt Brexit had slowed their growth and another piece of research by Deloitte found that only 13% of CFOs were more confident than three months ago and 79% felt that the longer term business environment would be worse after the UK leaves the EU.
Both the ONS and the Bank of England’s most recent assessments (to September 2018) indicated that investment by companies fell by 0.7 per cent in the three months to June, following a contraction of 0.5 per cent in the first quarter and that many businesses are putting investment on hold.
The Investment Association has calculated that UK investors have pulled nearly £9 billion from funds investing in British companies since the referendum.
Clearly confidence is crucial to investors as well as to business planning.

The health – or otherwise – of sectors in the UK economy

As I reported in my latest blog on the quarterly insolvency figures, there is a gradual upward trajectory in insolvencies which accelerated in the third Quarter with an increase of 8.9% on the previous quarter, driven largely by CVLs (Company Voluntary Liquidations) primarily in the construction, wholesale and retail sectors.
Retail sales were down in October and house price growth has been stalling throughout the year and is now at its weakest level since 2012.
However, the fall in the value of £Sterling against other currencies has arguably benefited the leisure and tourism industries since it makes visiting the UK more attractive to overseas visitors. This is borne out by the ONS growth figures for Q3, which showed that rolling three-month growth was 0.6% in September 2018, building on growth in the previous two months.
It has also benefited the car manufacturers, whose exports to non-EU countries increased by £1bn, while imports fell by £1.7bn, in the three months to September. Domestically, however, trade in motor vehicles decreased by 6.2% in September which might suggest a decline in consumer confidence.
The impact of £Sterling devaluation is also reflected in the latest ONS figures, that showed that there has been an increase in UK firms trading internationally by almost 16,000 last year. The total of 340,500 businesses trading abroad represents 14.3% of non-financial businesses in Britain. Non-financial services made up 53.1% of Britain’s international traders. Manufacturing growth also resumed in Q3 after two consecutive quarters of contraction.
Traditionally, the UK’S financial sector has been the strongest part of the UK economy, but there are some worrying predictions on the horizon with the possibility of an estimated 5,000 City jobs being lost, according to the City minister, John Glen, and the Bank of England, and as many as 37 finance firms potentially preparing to relocate to Europe. Indeed, many have already established offices abroad as part of their Brexit planning.
It should be emphasised that both a degree of clarity over the eventual position of the UK economy outside Europe and a longer time perspective are needed to be able to predict the future for the UK economy with any certainty.
But, all in all, the picture at the end of 2018 is decidedly mixed and it remains to be seen whether investment will recover and exports will continue to increase in the coming year.

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

Why the big four auditors are under intense scrutiny – an update

investigation into the big four auditorsFollowing the collapse of the company Carillion in February this year the role of its auditors came under the spotlight and investigations were promised, notably by the FRC (Financial Reporting Council) and the CMA (Competition and Markets Authority).
The reason for this was that the business had won several large public sector contracts, among them to build two hospitals, and also because its collapse put a number of subcontractors and jobs in jeopardy. However, primarily it was because its financial health was revealed to be considerably shakier than the directors had suggested.
The company’s annual audit had been carried out by KPMG, one of the big four auditors, and in March 2017 it had expressed no concern over reported profits of £150m, even though four months later these proved to be illusory. Perhaps they may have been reassured by the company’s ‘internal auditor’, Deloitte, which might also be looked into since it may have involved helping ‘massage’ numbers for KGMG to report on.
The role of the auditor is  ”to provide an independent opinion to the shareholders on the truth and fairness of the company’s financial statements,” according to The Institute of Chartered Accountants in England and Wales (ICAEW), one of the bodies appointed to approve and register auditors. Auditors’ reports, filed at Companies House, are used by suppliers and other interested parties to make decisions about their involvement with a company.
Not surprisingly, when the FRC, published the results of its annual inspections of the big four auditors in June it singled out KPMG for an “unacceptable deterioration” in the quality of its work.
But it also found that the overall quality of the audit profession is in decline and that only half of KPMG’s FTSE 350 audits. were deemed satisfactory.  In fairness it should be said that the FRC scores for the others in the big four had also declined. Deloitte scored 79%, down from 82% last year, EY fell from 92% to 82% and PwC was down from 90% to 84%.
It also fined PwC (Price Waterhouse Cooper) £6.5 million for its failings in auditing of retailer BHS two years before its collapse.
The calls for a radical overhaul have been growing as there seem to be so many accounting scandals, such as the recent problems with Patisserie Valerie. The calls reflect public concern about a conflict of interest since these businesses also earn massive fees from their clients for consultancy work.
Earlier this month KPMG announced that it will no longer do consultancy work for the UK’s biggest companies if it is also auditing them.

So when will there be some answers on the big four auditors?

According to a report in CityAM last week there are now five investigations either pending or on the go.
The CMA investigation following Carillion was expected to reveal its findings before the end of the year but it has recently announced that it is also intending to study the entire auditing market to see whether the big four were crushing competition from smaller firms.
Sir John Kingman, the chairman at Legal & General, was tasked by the government this summer with reviewing the operations of the FRC, whose outcome may strengthen its powers. The FRC is also reviewing itself separately from the Kingman investigation.
Shadow Chancellor John McDonnell has commissioned Professor Prem Sikka, an academic at the University of Sheffield, to review the sector and make recommendations with this report due by year end.
Finally, the Beis (Business, Energy & Industrial Strategy Select Committee) leader Rachel Reeves (Labour) has announced that it will review both the Kingman and CMA reviews, probably starting in January.
It will take a while before all the results are in and revealed but it looks like time is running out for the big four auditors and they can expect changes to regulation, to their ability to carry out both audits and consultancy, and possibly, some hefty fines at the end of it all.
 

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Banks, Lenders & Investors Business Development & Marketing General

October key indicator – has global trade peaked?

had global trade peaked?In a report in November 2017 the WEF (World Economic Forum) analysed the future prospects for global trade suggesting that there will be a different kind of globalisation presenting different challenges.
In August this year in an article in the Evening Standard Paul Donovan, global chief economist of UBS Wealth Management, argued that global trade growth had stalled in the last few years and we had hit “peak trade”.
The earlier WEF report had concluded: “International trade of goods based on offshore manufacturing will obviously continue to exist, but it will tend to decline below world GDP growth.”
The most recent OECD (Organisation for Economic Co-operation and Development) analysis painted a similarly bleak picture in September predicting that escalating trade tensions, tightening financial conditions in emerging markets and political risks were contributing to a less positive outlook and “could further undermine strong and sustainable medium-term growth worldwide”.
In all the above the focus was primarily on the trade in goods around the world.
So, what are the key stresses that are leading to such a gloomy picture for global trade? They include trade wars and the imposition of tariffs, a rise in protectionism, the advent of IR 4.0, austerity and its effect on consumer confidence, global debt and concerns about the environment.
Let me take each of these in turn, albeit some can be grouped together.
Tariffs and trade wars: particularly those being introduced by US President Donald Trump on China and the EU as part of his stated purpose to “Make America Great again”. Unfortunately, this escalating tit for tat exchange is essentially a political response following a failure of negotiation. The approach is aimed at addressing the concerns of those parts of US industry that have been hard hit by “offshoring” manufacturing to places with the cheapest labour costs. The consequence is likely to end up with many goods becoming more expensive, not least due to rapidly rising labour costs in US.
This has particularly impacted on the industrial communities of the American Midwest, the mining and metallurgical areas of Liverpool and Manchester, and formerly industrialized, rural areas of France, according to the OECD.
Protectionism: Inevitably, political calculation is intertwined with tariffs and trade wars and it has been noticeable that there has been a rise in the popularity of protectionist, nationalist political parties, not only in the US but across the developed world in the EU, and beyond. The hope is that those communities hardest hit by globalisation and offshoring will be revived as manufacturing returns “home”.
IR 4.0: the advent of IR 4.0 (the fourth Industrial Revolution) is bringing in robotics and AI to replace workers. It will affect many aspects of national economies, reducing costs and making manufacturing closer to the point of sale cheaper. The consequence will be the loss of many low-skilled jobs although it has been argued that these will be replaced by the higher skills necessary to operate such technical equipment.  Paul Donovan argues that the politicians are therefore hopelessly out of date and are “leading cavalry charges across a battlefield of nuclear missiles”.
How we trade and what we trade are both changing, he argues, hence his thesis that as IR 4.0 makes supply chains shorter the world may well have hit peak trade in goods.
Austerity and consumer debt: ten years after the 2008 Great Recession began, many developed world countries, most notably the UK, are still trying to deal with the consequences and rein in public spending to an extent that has had a significant negative impact on both business and consumer confidence. This in turn has impacted on the investment and spending on which their economies depend. Greece, one of the hardest-hit countries, is still struggling, the Italian economy is not in the best of shape and the UK debt burden is reportedly still at 80% of GDP.
Environment:  there is also growing concern about the impact of relentless growth on the environment, focussing on global warming, natural resources, population growth, deforestation and so on. This will have an increasing impact on costs and consumer spending.
Global debt: there are already signs of stress in several developing world economies, most recently in Venezuela and Argentina but it is predicted that Turkey too will soon follow their lead in requesting aid from the IMF (International Monetary Fund).
The Guardian’s Philip Inman in an op-ed piece on September 26 suggested that the world’s poorest countries had “little protection against Trump’s trade wars and the growth slump”. He reports that Unctad (United Nations Conference on Trade and Development) has warned in its annual health check on the global economy that there has been a “dramatic increase” in developing world debts, attributing this largely to the behaviour of private corporations. This has resulted in a tripling of global debt in relation to GDP in the weaker economies since 2008 from 7% to 26%.

It’s not all doom and gloom for global trade

All of this may seem like a bleak picture, but there is some evidence that in fact the global centre of gravity is shifting and we are currently living through a transition period.
According to an analysis of the world economy by HSBC: by 2020 China will become the world’s largest economy and India will overtake Japan, Germany, the UK and France to become number three behind US.
To an extent, argued Hamish McCrae in the Independent last week, this will be driven by two major factors contributing to their growth: catch-up and frontier. Catch-up is where emerging economies such as China start to adopt and apply the technologies from the developed world, while frontier economies will improve the productivity of their predominantly younger work forces through education and innovation and nurturing entrepreneurial talent.

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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

The post-election Government must start listening to business

confusing signpostAs if the post-EU referendum uncertainty wasn’t enough, businesses now must contend with a Government that is far less “strong and stable” than it was before the General Election.
Portcullis Public Affairs, of which I am a shareholder and chairman, is a specialist consultancy advising businesses on government and strategic communications.  It has an excellent perspective on the election outcome for business which can be viewed in the News section of its website at www.portcullispublicaffairs.com/oh-what-a-night-and-what-it-means/
It is almost a cliché that businesses hate uncertainty, so the implications for businesses, especially for SMEs, are not good. This has been made worse by a Prime Minister who appears to be anti-business and a manifesto that offered no reassurance to business.
Companies were already holding back on investment decisions and, in some cases, struggling to keep afloat in the face of rising costs on imported raw materials and oil thanks to the post referendum devaluation in £Sterling.
Trading conditions have gradually become more difficult since the start of 2017 as inflation and wage stagnation have fed through into the economy and dented consumer confidence – not helpful where so many small businesses in the service sector rely so heavily on consumer spending.
Many have felt that the government was not listening to or considering their concerns. Among the issues and proposals they have highlighted have been:

  • The lack of provision of growth funding after 2020 when current EU Funding ends (FSB chairman Mike Cherry).  This particularly affects SMEs in poorer parts of the country.
  • Abandoning the customs union, which allows UK firms to trade in the EU without paperwork, tariffs or barriers.
  • Requiring businesses to disclose the numbers of foreign workers they employ and failing to provide any assurances that those already working in the UK will be able to remain.  This affects all businesses where there is a skills shortage, such as construction, engineering and seasonal work on farms.
  • Being prepared to walk away without an agreement if the EU does not agree to UK’s terms.

With barely a week to go before formal negotiations are due to begin businesses have been signalling plummeting confidence and urgently demanding more engagement, flexibility and pragmatism on their needs.
Immediately after the election the Institute of Directors (IoD) reported a significant drop in confidence among the 700 members it has asked. IoD Director General Stephen Martin said the current uncertainty could have disastrous consequences for UK businesses.
“The needs of business and discussion of the economy were largely absent from the campaign,” he said. “but this crash in confidence shows how urgently that must change in the new government.”
Portcullis’ briefing ends with the view that without specialist advice businesses face making strategic errors that could be costly, or even fatal, in the current uncertain political climate.

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Business Development & Marketing Cash Flow & Forecasting Finance General Insolvency Turnaround

Where next for High Street retail?

Christmas High Street sceneAs the figures for pre-Christmas trading are appearing a clear divide is emerging in performance between non-food and food sales performance.
This is supported by Next reporting that sales fell by 0.4% compared to 2015.
However, as predicted, Marks & Spencer and John Lewis also reported increased sales in non-food items.
Discount retail posted the biggest gains.  B & M, which offers a range of household, DIY, furniture, clothing and other items, has reported a 7.2% rise in like for like sales during the three months up to December 24.
Perhaps predictably, however, online buying continued its inexorable upward trend by +19% according to BDO.
High Street shopping remained relatively quiet until the last week before Christmas, with analysts suggesting a variety of explanations ranging from Christmas falling at a weekend, giving a full week for “last minute” shopping, to consumers being more careful about their spending, to the Black Friday hangover and inevitably to the rise of online shopping.
Overall, retail analysts at BDO are predicting a slight fall overall in High Street retail trade in Dec 2016 after a significant fall of 5.3% in Dec 2015.

Less discretionary spending and more on “essentials”?

Interestingly, the food retailers have generally experienced increased sales in the pre- and post-Christmas period. Again, it was the discount end that did best with Aldi reporting sales up by +15%, and Lidl by +10%.
But of the “big four” supermarkets that have so far reported, sales were also up, at Sainsbury by .1%, largely fuelled by its Argos operation, at Tesco by 1.8%, at Morrison by .2%. Marks & Spencer, too, reported increased food sales, up by.6%.

Can retailers relax a little in 2017?

Despite the slightly more positive Christmas picture compared with 2015, this year retailers will still face several pressures as higher import prices thanks to a devaluing £Sterling feed through and hit both their costs and consumers’ income.
Food prices are expected to rise but so also are clothing, a great deal of which is manufactured outside the UK. What happens to oil prices will also play its part in increased transport costs and the price of petrol at the pumps reducing discretionary spending.
Two significant costs that may also affect High Street retail are the effect of Quarter day rents due at the end of December and the impact of business rate revaluations due to come into effect in April. While the latter may benefit smaller independents if may hit the larger stores hard. Given also the ongoing Brexit uncertainty inhibiting investment, will we see another BHS-style High Street name collapsing?

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

A cautious budget from a cautious Chancellor in a dire economic situation

small business financeThere were no major fireworks in Chancellor Philip Hammond’s Autumn Statement given the true state of the post-Brexit referendum economy as revealed by the Office for Budget Responsibility (OBR).
The OBR forecast that Government borrowing will rise and revised its growth expectation for 2017 down to 1.4% from 2.2%.
As Guardian columnist Larry Elliot said: “Philip Hammond’s message was stark and clear. The result of the EU referendum in June means the economy has arrived at a reality checkpoint. Deep-seated weaknesses will be exposed….. The chancellor was candid about Britain’s woefully poor productivity record. He admitted that infrastructure was deficient.”
In many ways, it confirmed what many SMEs have been saying for some time.

Was there any good news in the Autumn Statement for SMEs?

In our wish list earlier in the week we hoped for some recognition of the importance of SMEs to the economy and wanted to see some practical commitment to investing properly and quickly in both improving the UK’s physical infrastructure such as roads and rail for freight transport, and real signs of progress on getting reliable digital infrastructure, such as high speed broadband, to the many SMEs that are based throughout the country in rural locations and small towns.
There was some of that in the promises of £1.1bn extra investment in English local transport networks, £220m to reduce traffic pinch points, £23bn to be spent on innovation and infrastructure over five years, more than £1bn for digital infrastructure and 100% business rates relief on new fibre infrastructure, £1.8bn from the Local Growth Fund to English regions and Rural Rate Relief to be increased to 100%.
It was something of a “swings and roundabouts” budget because at the same time, some measures will increase business costs, such as the increase of the national living wage from £7.20 an hour to £7.50 for employees aged 25-plus in April 2017, increases to insurance premium tax, and changes to National Insurance rates.

Will any of this come in time to make a real difference to struggling SMEs?

While small builders get a boost from the promised £1.4bn for 40,000 extra affordable homes and van delivery and freight haulage companies will breathe a sigh of relief that fuel duty will not rise, lettings and estate agencies will be hit by the decision to ban upfront fees to tenants in England “as soon as possible”.
Generally, 100% Rural Rate Relief and the emphasis on investment in local physical and digital infrastructure should help those rural and small town SMEs – if it doesn’t take too long and actually reaches those parts.
As CBI director-general Carolyn Fairbairn emphasised, the plans needed to be put into action: “That means Tarmac, tracks and telecoms being laid, and clear, deliverable timetables for major projects – only then will they act as a catalyst for investment, jobs and growth.”

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Banks, Lenders & Investors Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance General Turnaround

SMEs: financial caution, fragility and risk in an uncertain world

small business financeSMEs in the UK are being super-cautious about finance according to new research on SME resilience carried out by the company Hitachi Capital Invoice Finance.
At the same time, their research has found, many are in a precarious position because they are relying too heavily on a single large client.

Some details from the research 

27% of the 500 SME respondents had put investment plans on hold and were not planning to make any investments over the next 12 months but were concentrating on survival, while 57% of them had not sought any external finance in the previous 12 months. 41% of them said they were using overdraft facilities to fund their businesses and more than half said they were worried that Brexit would not only impact on their access to finance but would make it more difficult to obtain credit in the future.
Another worrying finding from the research was the numbers of SMEs, 17%, where a single large client was responsible for more than 50% of their turnover while a majority said that their biggest client represented more than 26% of their revenue.
This combination of caution about investment and external finance and the exposure that relying to such a significant extent on a single large client does not paint a picture of a buoyant, robust and optimistic SME sector.

Are there solutions?

Clearly SMEs need to develop contingency plans to allow for the loss of clients in the coming uncertain and likely volatile months with the aim of having no more than 10% of their revenue from any one client.
A revisit to their growth strategy to reposition activity to more strenuous efforts at finding new clients to balance their income profile regardless of whether they are earning good money from a large client. While they are in this position it may be wise to revisit the sales targets and marketing budget and to invest more in their growth strategy.
It is also true that SMEs need to see some significant recognition of their difficult trading conditions from the Government.  In the last year or two they have had to contend with compulsory pensions auto-enrolment, a rate revaluation and the prospect of significant additional costs from the proposal for quarterly tax returns. More recently there has been the volatility of £Sterling on the currency markets since the Brexit decision and rising import costs and gloomy prospects for inflation.
Nevertheless, life could be made somewhat easier for SMEs if there were some significant recognition of SMEs’ importance to the UK economy and jobs and some practical commitment in tomorrow’s Autumn Statement to investing properly and quickly in improving both the UK’s physical infrastructure such as roads and rail for freight transport, and real signs of progress on getting reliable digital infrastructure, such as high speed broadband to the many SMEs that are based throughout the country in rural locations and small towns.
Let us see what tomorrow’s Autumn Statement brings us.

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

Insolvencies continued to fall in the three months up to the EU referendum

insolvency graphPerhaps because of the feverish media coverage before and after the UK EU referendum vote, there has been little if any comment on the continued reduction in company insolvencies.
The most recent figures, published at the end of July for April to June 2016 (Q2) showed a continuation of the downward trend that has been in evidence since their peak in 2009 in the aftermath of the 2008 Great Recession.
An estimated total of 3,617 companies entered insolvency in the last quarter, down 4.2% on the first three months of 2016 and down 2.7% on Q2 in 2015.
By far the biggest driving force remained Creditors’ Voluntary Liquidations, showing a slight rise, by 0.7% on the same period in 2015, and suggesting that creditors are unwilling, or unable, to wait for their money or to enter into arrangements for repayments over a longer period since the use of Company Voluntary Arrangements (CVAs) remains at rock bottom.

Construction Industry struggles

The Insolvency Service has as yet produced no figures for insolvencies by industry sector, but Construction was by far the worst hit from January to March (Q1) 2016.
However, the monthly Markit/PMI statistics are a good indication of the ongoing state of the Construction industry, showing a consistent contraction in both confidence and activity throughout the last six months.
Indeed, after two quarters of contraction the industry is in recession and the post-Brexit July figures gave no relief to the gloom, producing the worst set of monthly figures for seven years.
Given the uncertainty since the referendum, plus the erosion of profit margins due to increased materials costs and a skills shortage in the sector optimism about the health of Construction is not likely to return any time soon.
Certainly there is little prospect of much in the way of commercial construction while the future of the UK economy is in limbo.
It remains to be seen what the Government proposes to do about the acknowledged acute shortage of affordable homes that has been causing such problems (while at the same time pushing up property values). If there is some relaxation of the current restrictions on Housing Associations for new building of social housing there might be at least some relief for Construction.

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

What helpful indicators can SMEs keep an eye on?

worried businessmanCost and commodity prices have been very low for quite some time and the exchange rate will now mean they are likely to rise quite sharply over the coming months.
This will have an impact on costs for all kinds of businesses, from manufacturing to retail.  But given the ongoing uncertainty following the EU referendum what other indicators might be helpful to SMEs to monitor what is happening to the economic cycle and to economic activity?

Businesses will need to be patient

Economic activity among consumers and clients is the easiest and most immediate clue. In the retail sector are the end of season sales starting earlier than usual? Monthly figures for house sale activity and prices and for mortgage approval levels can also be a helpful guide to how confident consumers may be feeling. These are published monthly in arrears but it may be better to look at quarterly or even annual trends to get a clearer picture.
For business activity the monthly Markit PMI (Purchase Managers’ Index) is useful for measuring confidence and activity levels in both manufacturing and service industries.  The most recent one published last week and the first post-Referendum made grim reading with a headline that the UK economy had been shrinking at the fastest rate since 2009, immediately after the 2008 crash.
It found that manufacturing had dropped to its lowest level since February 2013 and that confidence levels in both sectors had fallen from 52.4 in June to 47.7.  Any figure below 50 means a contraction in activity.
Another perspective comes from the quarterly economic survey of business confidence from the British Chambers of Commerce (BCC).  Its most recent one, published in early July and covering April to June showed that there had been improvements in both manufacturing and service sector confidence and sales during the second quarter of the year for most regions in the country with only slight reductions in confidence looking ahead to the next quarter.
However, for those companies that may be struggling but have delayed making decisions on restructuring and on investment until after the referendum a key question will be what happens next to interest rates. Restructuring company Begbies Traynor has reported that company insolvencies were stabilising with fewer than 4,000 going into insolvency in the first three months of 2016, a rise of 5.4% on the previous three months but remaining lower than the same period in 2015.
The insolvency statistics are also reported quarterly in arrears so again it is likely to be a while before a clearer picture emerges.
What will happen to the economy will also depend on what actions the Bank of England and the new Chancellor, Philip Hammond, take in the next few months to stimulate the economy and how successful any measures they introduce are, bearing in mind that here too there is always a time lag.
Basically, therefore, the advice to SMEs is to keep calm and carry on while keeping an eye on the developments we have suggested above.
(Image courtesy of Vlado at FreeDigitalPhotos.net)

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

Would leaving the EU affect businesses’ access to capital?

EU referendum jugsaw pieces
To a large extent what will happen to access to capital should Britain vote to leave the EU will be determined by the perception and subsequent behaviour of three key players: the ratings agencies, such as Moody’s; the financial institutions, such as the banks; and investors.
In March Moody’s warned that the economic costs of leaving would outweigh the benefits and may put the UK’s Aa1 credit rating at risk. The agency believes that the value of debt would be likely to reduce because of a belief that debt would be less likely to be paid although it does not believe an exit would have much effect on the credit rating of banks.
It also suggested that it was “highly unlikely” the UK’s existing arrangements with the EU in areas such as trade would be “replicated in full”.

What might be the effects on lending and investing?

Business capital illustrationThe willingness of banks to lend is also likely to be affected by a Brexit, in my view.
I would argue that foreign banks would be less likely to lend in UK, a logical consequence of what Moody’s has been suggesting.  Given that UK banks are still not generally lending to small business this combination would suggest there will be much more reliance on alternative forms of funding, and that there will less funding available.
The third key set of players is investors. While it is rational for investors to wish to protect and increase their returns, for some time now they have focused on short term gains and “safe” or asset underwritten investments which accounts for the current high values of both gold and property. The question is whether the UK leaving the EU would increase their anxiety levels and push them further into safe investments. This would make it much harder for both UK manufacturing and service sectors to get access to capital.
A final consideration is that the EU treaty would continue for two years following a vote to leave and the Government would have to trigger a particular clause, Article 50, to push ahead with disengagement. I believe that the likely consequence of this would be a rise in the cost of capital and that both lenders and investors will become more cautious, certainly until they have more confidence about the future.

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

Proposed EU taxation and the UK Financial Sector

worried businessmanOver the coming weeks we will be looking at some of the issues that could influence whether the UK remains in, or leaves, the EU.
The first of these is a proposal to tax financial transactions.

What is the FTT’s purpose?

Following the 2008 financial crash the EU proposed a Financial Transaction Tax (FTT) also known as the Tobin tax as a means of reducing excessive risk taking by banks and other financial institutions and restricting income levels within the financial sector. It was argued that it would also help to increase stability and cushion domestic economies from excessive currency speculation.
Arguably it is intended to regulate both risky financial behaviour and, by introducing greater harmonisation of tax within the EU, to create an economically level playing field among members.
However, the idea has been opposed by the City of London on the grounds that it would result in job losses in financial centres, a decline in the level and flow of foreign direct investment and ultimately would slow global economic growth and development.

The arguments against

Further discussion about the introduction of a proposed EU (FTT) has been delayed until mid 2016 and so far only 10 countries within the EU are supporting some form of FTT.
All 28 EU member countries must vote in favour of the FTT for it to be introduced and indeed such a tax would be unlikely to achieve its stated aims within the EU while there was still the opportunity to carry out transactions outside of those countries that had adopted it.
The City also argues that harmonising tax across the EU would limit its powers to attract the best talent to London.
The question is whether it is in fact the case that light touch regulation in the UK and the arguably high level of expertise among corporate financial advisers that makes London the perfect place to do business.
If so, were the UK to leave the EU, would the financial centre of power shift away from London or is the concentration of financial expertise that exists there enough to avoid this?
(Image courtesy of Vlado at FreeDigitalPhotos.net)

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

What help was the budget to SMEs?

 

A post-budget vote in Kent by 100 business people revealed that 80% of them were more confident about the prospects for the economy in the South East than at this time last year.

But looked at closely, there was very little in the budget that was likely to make things any easier for the UK’s SMEs, which account for more than half our output and two thirds of all employment.

Admittedly, direct lending from government to UK businesses to promote exports was doubled to £3bn and interest rates on that lending cut by a third and business rate discounts and enhanced capital allowances in enterprise zones were extended for three years. But how many SMEs will benefit from these measures?

Admittedly also, some small builders may benefit from the extension to Help to Buy until 2020 and the “support” for the building of more than 200,000 new homes.

But there was not a word about the review of business rates that had been pressed for by so many businesses, not only High Street Retailers, in the days leading up to the Budget statement, nor about the previously oft-repeated promises to reduce red tape.

Given that the Chancellor himself has conceded that economic recovery is built on very fragile foundations is such an increase in confidence on the part of the businesses of Kent a case of too much too soon?

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

Unbalanced recovery – surprise, surprise

 

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

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

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

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

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

What has changed?

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

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

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

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

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Business Development & Marketing General Insolvency Rescue, Restructuring & Recovery Turnaround

Turning around SMEs for growth

Signs of an economic recovery seem to be feeding through into increased confidence among chief financial officers of some of the UK’s largest companies, according to the latest quarterly survey from Deloitte, which has put the appetite for risk at a six-year high.
The findings, reported in Monday’s business section of the Telegraph, found that 54% of financial officers believed it was a good time to take risk onto their companies’ balance sheets.
This is all well and good, given that many of these companies have been sitting on an estimated stash of £700 billion in cash, but what about the SME sector?
There has been no sign of any improvement in lending to this sector as we have heard repeatedly in recent weeks, yet they are seen as essential to a sustained economic recovery.
So what can they do if they don’t have either the reserves or the borrowing capability to take to take advantage of the signs of recovery?
Many SMEs have been hanging on, managing cash flow and paying down debt wherever possible but if they are to grow they need to make sure they are in the best possible shape and this may be exactly the time when a restructuring expert should be called in to take a thorough look at their business model and whether it is possible to free up some of the cash currently going to creditors.
Quick, skilled teamwork by turnaround professionals does not have to be used only when a company is insolvent.  The techniques can also be used to put SMEs into the best position to plan for growth. But they need a consensual approach involving all stakeholders as we say in this article in the Turnaround Supplement just published by the Daily Telegraph here.

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

Is it all doom and gloom or are there rays of sunshine on the horizon?

It started mid-May with the Bank of England governor Sir Mervyn King upgrading the economic forecast for the rest of this year.
The British Chamber of Commerce (BCI) was also slightly more optimistic in its forecasts and reports on business confidence.
In the last few days we’ve had three forecasts on monthly performance for the manufacturing, service and construction sectors, all of them showing signs of growth.
While no-one is denying that there are some years to go on paying down household and business debt, as the Telegraph’s CItyAM editor Allister Heath emphasises this week, is his doom-laden piece predicting an even more cataclysmic crisis really justified?
He cites the need to further massively cut the welfare state and also to what he calls the “terrifying recklessness” of the Government’s proposed Help to Buy scheme that could stoke up another credit-fuelled housing bubble.
It doesn’t help that we are only building 100,000 new houses a year instead of the 300,000 that we need to satisfy demand.
However, if the scheme were to stimulate house building we might stem house price inflation and avoid a bubble. It could also be used to redress the scarcity of smaller homes for both first time buyers and older people wanting to downsize as well as provide jobs for the approximate 20% of all SMEs that a thriving construction industry could employ.
We all know that “bad news” sells papers but there is also a converse argument that we need businesses to believe they have a future. With some measure of confidence in the future, businesses and SMEs in particular might begin to invest in growth.
So are you a pessimist, a realist or an optimist?

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

Frozen panic could become a self-fulfilling prophecy

The latest quarterly survey carried out by the insurance giant Zurich found that 16% of the British small and medium-sized businesses (SMEs) surveyed considered themselves at high risk of going out of business within the next year due to financial pressures.
Those perceiving themselves to be most at risk were SMEs in the Retail (21%), Construction (37%) and IT (24%) sectors. In all three the fear of going out of business had risen since the last Zurich quarterly survey.
However, it must be stressed that the survey is a record of the perceptions of SMEs.
More important, perhaps, is that almost 100% of them are not getting any help in dealing with their problems. Despite the latest government lending scheme, Funding for Lending, the banks continue to shun the SME sector as the Federation of Small Businesses (FSB) repeatedly highlights.
Just as important, is that most of them are not seeking help in dealing with their problems. Despite the perceived concerns of SMEs, they are not speaking to business advisers who remain quiet. Indeed insolvencies are at their lowest level for 30 years.
But again, perception plays a part but the insolvency statistics are a matter of fact.
Firstly there is the common view among SMEs that if they can’t see a solution then how can an “outsider”. Secondly, too often SMEs don’t know where to go for help and thirdly, they assume that it will cost them money they can’t afford to get help.
The danger is that the fear of going out of business then becomes a self-fulfilling prophecy, when with the help of a business doctor or turnaround advisor owners could save the business that has taken them years of hard work to build. Just a free consultation may be all that is needed, and most business doctors will provide some free support. It’s good business for all concerned.
 

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Banks, Lenders & Investors Business Development & Marketing General Turnaround

The Current Situation and K2’s Recommendations for the Autumn Budget Statement

Calls for measures in next week’s Autumn Budget Statement to stimulate the economy are growing louder by the day.
Sadly, the news has been unrelentingly gloomy since October, when Public Sector jobs cuts showed a reduction of 110,000 between March and June, the rate of cuts five times higher than the OBR’s prediction, while job creation in the private sector was only 41,000.
On 14 November, the CBI’s latest employment trends survey found that 47% of employers were relatively optimistic, predicting their workforces would be larger in a year while 19% predicted they would be smaller, a positive balance of +28%.
But then, on 16 November against the background of the Eurozone debt crisis, the Bank of England revised down its growth estimate to stagnation until mid-2012 and only 1% growth for the year as a whole.
The ONS unemployment and employment figures on 19 November showed unemployment at its highest ever total of 2.63 million. From July to September a record 305,000 employees had gone from the economy and in the same period 100,000 people became self employed making a record high total of 4.09 million.
Are these people with a burning ambition to start their own business or have they simply given up on the increasingly fruitless search for employment and set themselves up as freelance sub-contractors or consultants?
As lending conditions continued to tighten, particularly for the country’s SMEs, Project Merlin again undershot its target and companies continued to pay down debt rather than investing.
By 20 November, the CBI, too, had had a rethink, reporting that firms were now reviewing investment plans after a “sharp fall” in confidence with 70% of senior business leaders now less optimistic about the future and two out of five freezing recruitment or laying off staff.
This does not suggest that the private sector is either in the position or the mood to create the additional employment that the government hoped would mop up the public sector job losses.
While not wishing to contribute further to the doom and gloom, it is difficult to find anything positive to say about the current picture and therefore this post adds to the growing calls for a “plan A-plus”  to stimulate some growth. What business desperately needs is some stability to restore confidence.
Our wish list includes measures to encourage small businesses to build capacity for growth by making it easier for them to employ and train people. Initiatives such as a NIC holiday for new employees, or young employees, training grants and relaxing termination obligations will make it easier for employers to justify taking on staff.
We also need measures to encourage export, particularly to areas outside the Eurozone, such as export trade credit, marketing support, trade delegations and export tax credits.
Finally small businesses need to be able to fund their investment in growth via a level of credit easing. The Government initiative of demanding that banks make loans to SMES under Merlin, while at the same time requiring them to reduce risk, is a farce. There are a number of possible initiatives but the Enterprise Finance Guarantee scheme hasn’t worked and the Small Firms Loan Guarantee Scheme (SFLGS) that it replaced did work. We advocate a reintroduction of the SFLGS.