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

The current state of the commercial property sector

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

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

UK Business winners and losers – is uncertainty to be the new normal?

businessman on uncertain road aheadThe numbers of cranes on a city’s skyline are often taken as an indication of the health and vibrancy of its economy.
Not only are cranes evidence of demand, money and resources but also of jobs, not just in construction but, eventually, for occupiers of the buildings.
Whether such observations hold true in the current economic circumstances is open to question.
The most recent Markit/CIPS monthly snapshot on construction for November, published on December 2, would seem to reinforce the impression of health showing construction activity expanding to an eight-month high, albeit purchasing managers are also reporting a steep increase in materials costs.
On the other hand, however, on November 22 it was reported that a large Manchester-based heavy machinery plant-hire group, Hewden, with 40 branches across the UK and a workforce of 750, had gone into administration. 251 people, many of them crane operators, were made redundant. The Guardian report said Hewden was owned by private equity firm Sun Capital Partners, which had warned in October that market uncertainty following the Brexit vote had adversely affected a number of large construction and investment projects.
Yesterday’s publication of the IHS Markit/CIPS purchasing managers’ index for the Service sector also showed a rise from 55.2 in November from 54.5 the previous month. But here, too, there was a note of caution from Chris Williamson, chief business economist at IHS: “Rising prices – often linked to the weaker pound – are a big concern, however, and suggest that inflation is set to lift higher.”
These examples illustrate how difficult it is for SMEs to assess what they might be facing in their economic future and how best to prepare for it.

Known knowns and known unknowns

There are a number of triggers that could affect what happens both to the UK, EU and US economies and there are plenty of question marks over all of them.
First and most obvious in the UK, as the Supreme Court hearing gets under way into whether parliament’s consent is needed to trigger Article 50, is the uncertainty over the start date, length and likely outcome of negotiations to leave the EU.
Equally it is unclear whether the lower value of £Sterling will encourage or discourage investment in the UK. However, the fluctuations in the Exchange Rate and their effect on £Sterling in relation to the $US and to the €Euro will doubtless continue.
Yesterday, £Sterling had risen against the €Euro following the Italian referendum on constitutional change, in which the Government was defeated. Where will this leave both the fragile banks in Europe’s third largest economy and also the EU economy?
Perhaps the biggest unknown is what will happen when President-elect Trump takes over in January 2017. How protectionist will he be? Will he follow through with fiscal stimulus, which is likely to lead to both inflation and a rise in interest rates and a shift from economic recovery to recession as happened in the UK’s Heath Government in the 1970s? This time with considerably higher personal debt there is less room for manoeuvre and in a much larger economy than when UK asked for an IMF bail-out.
Then there is the recent seeming resurgence of OPEC in controlling output and thereby the price of oil.
There are many uncontrollable factors in a globally interconnected economy that are likely to buffet any national economy and affect its businesses, regardless of Brexit and whether SMEs are trading locally or are exporters.
The omens are not good but inevitably for some SMEs the prospects may be fantastic and for others quite the opposite. What is sure, though, is that for the foreseeable future the uncertainty of unknown unknowns is the new normal.

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Factors to consider when setting prices

setting prices by valueBack in early May we published a blog on the trade-off between quality, production cost and speed of delivery when negotiating prices with customers.
Now businesses are in potentially more uncertain waters given exchange rate volatility and as yet unknown post-Referendum trading terms, we are looking at pricing from another perspective.
This is about considerations when setting prices that involve both the cost of production, the value of the product to the customer and most importantly making money.

Would you seriously consider selling at a loss?

Loss leaders are a well-known tactic among food retailers, such as selling milk at a loss in order to attract customers into a store, where they will be tempted to buy other items.  It works if a business offers a wide range of products, but why, otherwise would a business do it?
As a tactic for winning work it plainly is not a long term, viable option, and as a strategy for driving competition out of the market it is a very risky gamble.
Essentially setting, or increasing, prices depends firstly on how much the business’ customers value its product and secondly, on what it costs to produce.  If it is highly valued that presents an opportunity to price with a comfortable margin for profit after taking costs into account.
However, there is another factor in the equation and that is the length of time between order and fulfilment, especially when buying in supplies from abroad and when exchange rates are as volatile as they have been since the UK’s EU Referendum in June.
A good example is the recently-confirmed deal to build a new nuclear reactor at Hinckley Point. There, the question was how to set a price for future energy supply that allowed the reactor to be built and for the partners in the deal to be confident of getting a reasonable return from sales, given the lifespan of the project. In this case the uncertainty of cost and price inflation will have been major factors when fixing the minimum future cost of electricity that was highlighted in the media.
This brings up another point to consider and that is who carries the risk when delivery of a fixed price order is a long way ahead.  Should it be the client or the business as supplier?
If the uncertainty of costs is a concern, then forward fixing purchase prices and exchange rates is an option albeit it can be an expensive one. Another option is to include in the contract a variable element that adjusts the price by reference to costs. If this offers customers the prospect that the price may also go down, then it can be easier to sell.

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

Businesses continue to lack confidence

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

Have we lost the ability to make decisions?

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

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

Continuous improvement is a must for business survival

financial crisis get aheadAt last! The UK will vote on staying in or getting out the EU in June.
At least there is an end in sight to one issue that has been causing businesses to put potential plans for investment on hold.
In the interim there is plenty that a business can do to ensure it is in the best possible shape for the future, whatever the outcome of the vote.
The next three months provide a breathing space when a business can focus more closely on aspects of continuous improvement that may have slipped down the “to-do” list at busy times, although it should be an ongoing activity for every business, whatever the circumstances.
It may be a good time to consider whether to upgrade equipment whether it is manufacturing machinery or IT hardware.  Is the cost of repairs beginning to outweigh the benefits of waiting before investing in new kit?  Is it possible that new kit will automate some processes currently carried out by employees, who could be more productively used elsewhere? This again applies whatever the outcome of the vote.
There may also be some processes that are currently carried out in-house and could be outsourced more economically.  Again this may release some people for other, more productive activities.

It’s all about being prepared and agile

Introducing more automation or outsourcing does not necessarily mean reducing the work force.  It may offer an opportunity to train people in additional skills that will benefit the business in the future. It may then be possible to offer a wider range of products or services and create another income stream making the company more adaptable and flexible.
The challenge is to determine where to do business, where to grow, inside or outside Europe.
Given the impending in/out vote now is a time to plan for both scenarios so you are ready to embrace the future. Either outcome will offer plenty of opportunities.
The ability to respond to a rapidly changing economic environment is something a business ignores at its peril.  This is why a culture of continuous improvement is essential to any 21st century business.

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Time to try some creative and memorable marketing

marketing and its role in businessThere is a considerable temptation when the economic times are uncertain to cut back on any overheads a business considers “non-essential”.
Often this will include scaling back on the marketing budget. Keeping tight control of costs as part of being prepared for any eventuality may be sensible, but a business needs to consider carefully in which areas to economise.
It is actually during uncertain economic times when marketing becomes more important than ever.  If a company’s name disappears off the radar there is always a risk that clients will buy elsewhere, whether due to competitor marketing or your simply not being ‘top of mind’.
So in addition to putting extra effort into taking care of existing customers, a wise business will also put more thought and effort into its marketing and pick up customers who aren’t being looked after by their competitors.
When the atmosphere is grim and people are worried, there is also a perfect opportunity to do something innovative, perhaps introduce some humour or something that will lift the spirits if only for a moment.

Here’s an example

Most of us can relate to the irritation of being stuck in a static traffic queue especially when in a hurry. Recently I was in this situation behind a large removals van.  The company’s name was the name of its founder, let’s call him Ron Smith (not the real company name).
I was a captive audience for the quiz-style question on the back of the van:
“Who said:  “I haven’t reported my stolen credit card because whoever stole it is spending less than my wife” followed by a choice of three names, 1) Ron Smith; 2) Ilie Nastase; or 3) Joe Bloggs? Visit www.Ron-Smith.co.uk/trafficjamsareboring for the answer.”
Not only did it provide a moment’s  light relief from the tedium of being stuck in a traffic queue I remembered the name and the website and looked it up when I got to my destination, even though I am not planning a home move.
While, sadly, the second part of the web link proved to be a piece of fiction, as creative and memorable marketing it worked.
Of course, having got potential clients to your website there needs to be a reason for them to buy your products or services or at least making sure they remember you. This particular website did that by being informative and interesting, as well as being written in a friendly, welcoming and humorous manner.
Marketing does not have to be costly but it does need to be creative and memorable if you want to attract attention in the first place and get clients to remember you and come back when they are ready to buy.
Do you have any similar examples of innovative marketing?
Image courtesy of renjith krishnan at FreeDigitalPhotos.net
 

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Business Development & Marketing General Turnaround

Customer care is essential in today’s economic climate

It may be premature and alarmist to speak of an impending financial crisis, but when the markets, including financial, economic and trading situations, are as uncertain as they have been since the start of 2016 businesses may be wise to rein in their growth ambitions for a while and focus, among other things, on customer care.
It is easy to forget that your customers are human beings and to win their loyalty they need to feel valued, appreciated and treated with respect. How often and for what purpose, for instance, do you communicate with clients or customers?
Rather than only communicating with them when the underlying reason, however tactfully put, is to make a sale or meet a target, it is worth engaging in regular conversation or exchanging ideas or just asking after their wellbeing.

Talking to customers can generate new ideas

customer care - is there something you should be doing?Asking for feedback or carrying out a customer satisfaction survey can be useful not only to retain customer loyalty but also to enable a business to plan ahead for when conditions are more favourable for investing in growth, new products and services.
It may be that the solutions they need to their problems have changed and a simple letter or conversation can not only improve customer satisfaction and retention but also provide a business with valuable information that will enable it to provide a better, or excellent, service.
Equally, an inquiry will convey that your business cares about them and their concerns, will listen to them, and is committed to providing the best service that it can.
Having started a dialogue it is also important to respond. Let them know what you have learned and perhaps invite them to make further comments.
Essentially when business conditions are difficult or uncertain there is still a great deal a business can do, not only to protect itself and retain loyal customers but also to develop new ideas for the future.

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

Now the election is out of the way, what are your business priorities?

Before the election last week, the main business worries were the lack of orders due to uncertainty, and the lack of finance for small businesses.
Almost as soon as the results were in, John Longworth, the Director General of the British Chambers of Commerce, among others was calling for “bold, ambitious” action from the newly-formed government.
His open letter to the Government asked for an emphasis on growth, not austerity and on measures to help businesses to export.
Meanwhile, the Daily Telegraph’s Matthew Lynn identified four business priorities that the government needs to address with some dispatch to help businesses and economic growth.
They are reducing both capital gains and top rate income tax, actually delivering on promises to remove red tape (partly by renegotiating some of the EU regulations affecting businesses), helping entrepreneurs by exempting them from some employment and capital gains regulations for their first five years in business and by recognising that the property market is broken.
While the election has introduced a level of certainty, the uncertainty about an in/out EU referendum remains and time will tell if government initiatives stimulate investment since the EU regulations on banks will discourage risky lending which for most UK banks means lending to SMEs.
We invite you to tell us what measures would most help your business to grow, and also what you think the Government should do to support them.

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

Election uncertainty puts business activity on hold

There is no doubt that there is a lull in business activity ahead of the UK election which I believe is due to uncertainty about the outcome.
But the outcome itself is unlikely to deliver the certainty needed for businesses to make plans for the future. Rather than certainty, the psephologists are predicting we are a long way from having a majority government and we may be entering uncharted political territory.
At the moment, there is little prospect of even a coalition forming a government with a clear majority. This is somewhat alarming for business as the party leaders have ruled out possible alliances. The likelihood is that no party will be able to survive a full five-year term.
Britain is still a novice when it comes to coalitions. This is a shame as experience in those countries that have had them for some time has shown that they can be a good thing. One big advantage of coalitions is that they provide scope for parties to reverse some of their election promises, which all too often are made to solicit votes, despite whether or not they can be afforded.
From the business perspective, in a country where government by coalition is accepted and understood, a strong coalition can be a desirable outcome as business needs both stability and extreme policies being tempered by coalition partners.
It will take a while before Britain reaches that point, so the uncertainty is likely to continue and in that environment many business will continue to struggle as there is little to justify attempts to grow in an uncertain environment.

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

What’s the point of a business plan?

Business gurus will insist that a SME has no credibility or chance of success without a proper business plan.
There’s no prospect of raising finance without one, even, these days via crowd funding.
But many small business owners struggle with the concept of setting targets for revenue, growth or increased turnover in one, three or even five years time, especially given the volatility of local, national and export markets since 2008.
It can feel like crystal ball gazing or fantasy. Who knows what may happen next?
But what most forget is that a plan isn’t set in stone. It needs to be re-visited regularly and should be adjusted as conditions change.
Most business advisers would advise flexibility and regular reviews of performance so that goals and decisions about spending can be adjusted accordingly.
As part of a flexible business plan, nowadays an essential ingredient is the cash flow forecast.
This can then be used to spend more or less depending on the availability of cash and the return on it being invested such as on growth and marketing initiatives, or on efficiency and cost reduction measures.
For businesses to successfully survive the economic uncertainties that look as though they may be with us for some more years they will need to plan for multiple outcomes regardless of what is planned.
So yes, a business plan is still an essential map through uncharted waters as long as it is looked at regularly and adjusted when necessary.

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

Labour's promise on zero hours contracts may result in a rise in unemployment

The run-up to an election can be relied on to generate ambiguously-worded promises that may or may not be delivered by the eventual winner.
One such is the promise in Labour’s manifesto to “ban exploitative zero hours contracts so that if you work regular hours you get a regular contract”.
This pledge has been truncated in some media to “ban exploitative zero hours contracts”.
Either way the pledge could be read in more than one way. Is it a complete ban on all zero hours contracts or is the key word here “exploitative”?
The fact is that a zero hours contract can be very useful, particularly for SMEs to justify employing staff. In a volatile market it gives a company flexibility and allows it to keep overheads as low as possible by tailoring the workforce to demand. Orders cannot be guaranteed and businesses will behave rationally. If they cannot use zero hours contracts then they have other alternatives such as overtime for existing employees, to simply not take on the work, to outsource it to low-wage or more flexible countries, or they can use agency-supplied workers.
There is one aspect of “exploitation” that does need to be addressed which is when an employer makes the contract exclusive to them thus preventing the employee from taking any other work to fill in the gaps.
It is acknowledged that there is an issue for employees due to the lack of a guarantee of a minimum level of hours. There is however a market for jobs whereby employees will weight up the wages and security offered by some employers against those of others and behave rationally. It is also why the market for jobs needs to be underpinned by an effective unemployment benefits system.
So what is Labour really proposing? To close the loopholes that allow exploitation by allowing workers to have more than one zero hours contract? To get rid of zero hours contracts all together, and replace them, with what? To limit them somehow, whether a maximum period of work, or by size of employer?
Absent all other factors, any major reduction in the use of zero hours contracts will result in a rise of unemployment. This may however be the real objective of Labour’s paymasters as it is believed that very few employees on zero hours contracts are members of unions.

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

Growth? – make hay while the sun shines

With all the uncertainty and market volatility in recent weeks should SMEs still focus on cash so that new opportunities and growth can be funded without over-trading (running out of cash)?
It seems that although many small businesses are reporting increases in orders, they are being cautious about taking risks.
Generally as an economy comes out of recession and orders start to pick up there’s a risk of over-trading, especially where a business has insufficient capital reserves to fund the period between order and payment.
This explains the well-documented rise in insolvencies that characterises the start of an economic recovery. We haven’t seen a rise in insolvencies yet and the feedback from SMEs has been that they are not yet convinced of a stable recovery.
We believe SMEs are taking a realistic view in welcoming increased business, deciding to make hay while the sun shines, but not yet pursuing aggressive growth strategies.
What is your view?

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

Maghreb and Middle East Volatility Adds to Pressures on UK Business

Pressure on UK businesses is already intense as a result of the Government’s austerity measures designed to cut the UK budget deficit.
Already facing changes to NI payments, rising prices for raw materials as well as January’s increase in VAT from 17.5% to 20% and the dilemma of how much of these additional costs to pass on to consumers, now upheavals throughout North Africa and the Middle East are adding enormous uncertainty.  Oil prices have soared to their highest levels for two years, with impacts on all areas of the economy.
But it is not only oil prices that could add to business instability.  The UK is Egypt’s largest investor at around £10 billion, with around 900 UK companies involved, in
Tunisia exports from the UK in 2009 totalled £153 milliion, while imports were at £406 million, and trade with Libya is estimated to be worth £1.5 billion. British exports of goods to Libya were worth an estimated £1.29 billion in 2010.
The impacts will be felt on the UK travel industry, UK construction involved in building and infrastructure projects in Egypt and Tunisia but also on domestic services, for example Libyan-funded education in the UK of more than 6,000 students on undergraduate and postgraduate courses, worth an estimated £160 million.
I believe that, while businesses should try to hold their nerve, even those businesses that have survived so far without getting into difficulties might be wise to not only pay close attention to cash flow but also to revisit their business plans to put themselves in the best possible shape to be able to cope with the continuing uncertainty.