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Banks, Lenders & Investors Finance General Turnaround

Can we rely on the US dollar for global financial stability?

Many of the world’s currencies rely on the US dollar as a world reserve currency to hold for their own stability.
But Alasdair Macleod,  head of research for GoldMoney, argues that action to protect the dollar by rapid monetary expansion since the Great Depression in 2008 has led to an excess of paper money representing $trillions in debt held by emerging markets, which use it as an international settlement medium.
He warns that this excess of money, which central banks control through interest rates, is now getting beyond this form of control.
The US needs to continue monetary expansion by printing more paper money and bank credit to avoid a depression in its own economy but this is likely to undermine confidence in the dollar as a global currency.
Macleod argues that this has increased the risks of global financial instability.
The problem is that there is a lack of appetite for borrowing by sound businesses due to subdued economic growth. This has also affected commodity prices, such as oil, steel and various minerals leaving the countries that produce them with unsustainable dollar debts.
It is a precarious situation and should there be some event, similar to the dot.com Bubble of the 1990s or a housing market crash, it is likely to lead to a loss of confidence in the dollar.
At that point people would be likely to dispose of dollars or spend them as quickly as possible in preference for ownership of goods.
The knock on effect would impact on the Japanese Yen, the Euro and Sterling and all the other currencies tied to the dollar, whereby they too would suffer.
The prospect of a global recession is not one anyone wants to talk about but it may be the elephant in the room.

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

Recession or lacklustre growth in the next decade?

We all know that forecasting is an uncertain business and that news headlines should be treated with considerable caution.
But it is difficult for a small business to plan ahead without paying at least some attention to both.
Over the last week or two a random selection of economic and business news has included, inevitably, China’s continued economic slowdown, warnings of a “global financial bubble” from Germany’s finance minister Wolfgang Schaeuble, and worries from the World Bank about the effects of interest rate rises with national and the global economies still so unsettled.
In the UK, manufacturing and engineering growth has continued to decline according to the ONS (Office for National Statistics).
At the same time the service sector continues to perform strongly and energy and raw materials costs have been coming down.
Yet we are told that the UK economy is one of the best performing.
Given these mixed messages a report from McKinsey & Company outlines four possible scenarios for economic performance in the next decade. There are two negatives. They are uneven and volatile but high global growth, or volatile and weak global growth. On the other side are rapid, globally distributed growth with productivity increases and, finally, low but more stable growth.
All depend on how countries manage both their own economies and co-operation to tackle international challenges.
Clearly SMEs, even those that operate solely in a domestic market, cannot remain completely immune to wider economic issues but given such an uncertain outlook, perhaps the best message is to remain cautious but “Keep calm and carry on”.

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

Inequality stifling growth?

With an election due soon and party conference season in the UK almost completed, it is no surprise that there has been some focus on the widening inequality between society’s poorest and richest.
However it seems it is not only on the politicians’ minds.
Income inequality is on the agenda for annual meetings of the IMF and the World Bank, and it has also been the subject of a discussion on BBC’s Radio 4 between economics editor Robert Peston and two US economists, Amir Sufi and Prof Atif Mian, whose book House of Debt explores the issues of widening inequality making us all poorer.
Why?  Because there is a theory developing that there is a link between the debts of the poorest in the economy and recession, which argues that because the poor have little or no spare disposable income and when there is a slump, and debts outweigh the value of property this group spends much less.
When millions do this, as consumers did following the 2008 Crash, the result is recession.
Could there also be a link between this and the anaemic wage growth that has hit most working people since then? And could this be an argument for boosting their spending power to stimulate economic growth, – either through wage increases at least in line with inflation or by reducing taxation?
Of course SME employers will argue that wage increases are unaffordable given global competition and narrowing margins – so what can be done to break the deadlock?
My own view is that we need to stimulate investment in productivity so that in turn employers can share the gains. What’s yours?

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

The perils of a narrow focus and its effect on growth

There is always going to be a need for certain skills regardless of technological change yet somehow over the last couple of decades many trades have been ignored or forgotten in the push to get more young people into university.
As a result there is a significant shortage of many skilled tradesmen and women.
One example is the construction industry, both for new building and the maintenance of existing property. We all know there is an urgent need for more housing and that this is fueling a rise in property prices beyond the affordability levels.
For some time now, we have been hearing that local tradesmen such as, builders, plumbers, painters and decorators, are booked up for months ahead. Many jobs and postings on local social media forums ask for anyone prepared to work in the building industry.
This demand is similar for both small and large construction companies, most of which are growing but cannot recruit enough skilled people.
Despite economic recovery, we are in a position where past narrow thinking has led to the possibility that growth in construction risks being stifled by its inability to find enough skilled people to meet the demand. And if a domestic emergency arises with the plumbing this winter it may be a challenge to find someone to deal with it.
What other sectors do you know of that are experiencing similar problems and how are they addressing the skills-shortage problem?

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

Regional growth is on hold while we wait for the election

Plainly we’re already hearing political promises ahead of the 2015 election and most noticeably a recognition that the political focus may be shifting away from London.
Small businesses have been saying for many months that the economic picture on investment and their ability to grow is a lot less rosy than in the capital.
Surprise, surprise, Westminster seems finally to be listening with announcements from both Labour and this week from the Coalition on a promised £5 billion of Government investment to be allocated to local authorities and businesses for building homes, improving transport links and for small business support services and new training opportunities.
None of this will happen until after the election at the earliest and that is not helpful for the many small businesses anxious to take advantage of positive signs in the economy.
In the meantime Deloitte has carried out a poll of 112 chief financial officers in bigger companies, which has revealed that while these larger companies were a little more confident about investing and expanding, the respondents felt that the political uncertainty about the election, the Scottish and potential EU referenda were the biggest risks to business.
It would seem therefore that before any “feelgood factor” translates into investment and growth flowing down to small businesses, especially to those in the regions, we need to get the next general election out of the way.
This will provide greater certainty about the future, which in turn influences the confidence about the economy that is needed to justify investment in growth.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Can SMEs afford to bid for public sector contracts?

 

By coincidence on the same day that the British Chambers of Commerce (BCC) announced revised growth forecasts, predicting that the economy would overtake its pre-2008 crisis peak in the second quarter of 2014 rather than in 2016, an SME announced that it was pulling out of further involvement in a valuable contract with the Ministry of Justice (MoJ).

Sara Murray, founder of Aylesbury technology company Buddi, said in an interview with the Daily Telegraph that tendering for the contract to supply software and tags for tracking 24,000 offenders had eaten up nearly two years of the company’s time and cost £2 million to assemble the documentation required for the bid. The paperwork filled 13 large boxes delivered in two taxis.  It was the only SME to win a part of the 4-Lot contract.

Then came further MoJ requests for “thousands of pages of information” to be given to other bidders and requests to share Buddi’s intellectual property with other bidders.  Buddi also had to deal with constantly changing specifications until finally the demand that Buddi would do further development work free of charge. This was the final straw that triggered Ms Murray’s decision to withdraw from the tender process.

In 2005 Buddi was a start-up. When it began working on the bid it had 25 staff. While preparing the tender for this contract with the MoJ it was servicing existing contracts both nationally and internationally and focused on growth. It now employs 40 people.

Ms Murray said the company has tendered for and won work overseas and found their processes far faster and far less complex.  She sits on a number of Government advisory panels and is passionate about getting SMEs working with Government.

Government claims it wants to help SMEs grow, it promises to remove red tape, and it wants more SMEs to work with them. It seems there’s a long way to go.

If the BCC’s prediction is proved accurate, given Buddi’s experience one has to ask whether all this growth will be confined to the “usual big-company suspects”.

Are you aware of SMEs tendering for public sector contracts? Is there one bit of red tape above all others that you would like to see removed?

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Flavour of the month – MINT

 

It started with the BRICs, then came the PIGS and now it’s the MINTs.

What do they all have in common besides being acronyms?  They’re all groups of countries that have at various times been grouped together as either economies that are tipped to grow, and therefore offer good potential for UK firms wanting to expand and export their goods and services, – or possibly not, in the case of the PIGS (Portugal, Ireland, Greece and Spain) highlighted as problem economies at the height of the global financial crisis.

It seems the BRICs (Brazil, Russia, India and China) are old news.  The potential new kids on the block are the MINTs (Mexico, Indonesia, Nigeria and Turkey).

Although they are widely disparate both geographically and in terms of infrastructure they are being seen as emerging economies with growing populations of young people.

We’ve said before that SMEs in the UK need to become more innovative when researching markets for their products and services and to not discount opportunities for growth abroad.

We’re not pretending it will be easy so you need to do your homework.  If you can, it’s worth actually visiting the country to get a feel for how things work and what opportunities might exist.

The Government’s UKTI (UK Trade and Investment) is a good place to start.  It offers support and experts to help you and regularly organises business delegations to countries around the world.

Fancy a MINT anyone?

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

It’s all about getting the balance right if SMEs want to grow

 

There is a lot of optimism in the press and the New Year heralds confidence about the prospects for growth.

What does this mean for SMEs hoping to take advantage of the predicted improved trading conditions?

In a word: realism.

It requires deep knowledge of a business’s current financial position, specifically its current assets and liabilities, as these are crucial for funding growth.

If an SME is operating on very slender margins, or just about hanging on from month to month, it is unlikely to be able to take advantage of increasing orders without some additional finance and preferably not of the kind that relies on personal savings or support from friends and family, as a quarter of SMEs currently are, according to research by Bibby Financial Services.

SMEs will need to be mindful of two things when planning for growth. Firstly, it is looking increasingly likely that interest rates may start rising towards the end of 2014 which suggests that having a robust forecast will help assess the impact of interest rates before taking on more debt.

Secondly, there is as yet little evidence that lending to businesses is becoming any easier, especially loans from the banks or extended credit from suppliers which suggests that growth will need to be funded by either reserves or shareholders.

So an SME’s first step in planning for growth is to not only to know the current financial situation but to also have realistic forecasts that may need to be prepared with input from an external business advisor.

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

Relying on consumers for restored economic growth is madness

Moderate improvements in economic activity, upwardly revised growth forecasts for the rest of 2013 and now, Bank of England figures showing increased lending to small businesses in June are to be welcomed.
Certainly coupled with a few sporting triumphs and some hot, sunny days this has all been seen as good news by politicians and some media commentators.
But look a little more closely and actually many of the figures given are still well below pre-2008 levels. In the case of SME borrowing records only began in 2011 and lending has been falling since 2009. SME borrowing may have risen a little in June but compared with a year earlier according to the BoE it is still declining, by 3.3% on the same period last year. One monthly swallow does not make a summer.
Sensible businesses are still watching their cash flow, consumer debt may be falling but is still believed to be unsustainably high, yet everyone seems to be jumping on the optimism bandwagon. Most recently the EU’s Gfk/NOP indicator is suggesting that consumer sentiment will continue to pick up.
Haven’t we been here before?  As the Telegraph’s City AM editor Allister Heath pointed out a week or so back, lessons have not been learned if everyone is relying on credit-fuelled consumer-led growth via increased activity in the housing market and rising house prices, fuelled by the Help to Buy scheme.
Isn’t it also true that our economic difficulties are where they are precisely because of a house price bubble and too much credit pre-2008? Plainly there are still lessons not yet learned.

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

Is it Realistic for Private Businesses to Employ more Staff in 2011?

The majority of businesses in the UK are defined as small and employ fewer than 50 people while only one per cent of UK companies employ more than 1000 people.
Small businesses would generally be defined as having fewer than 50 employees, assets worth less than £5 million and a turnover less than £5 million, yet they account for two thirds of the UK’s private sector.
The Government is pinning its hopes of recovery on dramatically and quickly reducing the country’s budget deficit with a combination of cutbacks, including making an estimated 330,000 people in the public sector redundant, a figure revised downwards in November 2010 from its estimate of 490,000 the previous June.
This revision, albeit in human terms still a large number of people, is based on its forecast for growth in the economy in 2011 of 2.1% for all of which it relies on the private sector – the majority of which is made up of small businesses.
Economists and politicians are both emphasising that the opportunities for growth lie largely in increasing exports on the grounds that there is a burgeoning middle class in the fastest growing economies, like China, India, Brazil and Russia (the BRICS) with a growing appetite for sophisticated technology and household products.
But while this might be an option for businesses involved in manufacture it does not help those many small businesses providing services and products to local businesses and consumers in the UK only.
The UK manufacturing sector currently accounts for 26% of Gross Domestic Product (GDP) and the Government’s Department for Business, Innovation and Skills (BIS) published a White Paper proposing to expand adult apprenticeships by up to 75,000 by 2014-15 and to set up a new £50 million Growth and Innovation Fund, with financial support to SMEs to co-fund the costs of training for lower skilled employees.
Help with skills training by 2014-15 is hardly much use in 2011 and in any event growth will depend on being able to both increase sales and availability of finance from the banks to fund the additional working capital needed to support them.