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

Don’t let fear rule your business behaviour

A researcher in the USA asked small business owners what they most feared or worried about and we would argue that the findings would be the same or similar in the UK.
Top concerns were fear of failure, no customers, poor sales, wasting money on ineffective marketing, financial failure and negative effects on their personal lives.
Some would argue that a certain amount of fear can be a great motivator to keep the adrenaline flowing as human beings thrive on challenge.
However, too much fear can be overwhelming and paralysing, resulting in an inability to make decisions, let alone take risks. Decision making is a fundamental necessity in business, as is facing up to problems if the business is in difficulty. Especially critical are when problems involve cash flow, creditor pressure and litigation that might lead to insolvency.
Regardless of whether we are motivated or paralysed by challenges the worst path to take is to keep our thoughts to ourselves or to ignore a situation.
It is always helpful to share ideas and problems, whether a small business is planning for growth or needs to make changes if survival is in jeopardy.
A business advisor, experienced colleague or friend is likely not only to be on your side but also able to take a dispassionate view and may well produce ideas or solutions you haven’t thought of. Certainly the act of expressing what is on your mind will help you to clarify an issue and may also reduce the stress to manageable proportions where paralysis gives way to effective action.

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

Glass half full?

In an ideal world every small business is planning ahead but needs some clarity and certainty about the future economic environment in which it is likely to be operating.
The reality, however, is more like an exercise in crystal ball gazing.
Business headlines portray a rosy picture of the UK economy back to pre-Great Recession levels of performance which is underpinned by unemployment falling dramatically. It should however be remembered that we are already in the build-up to the next election, now less than a year away.
Other commentators who are not getting the headlines are promoting a level of caution that no one wants to hear. We have had quite enough bad news over the past 6 years and now want some good news.
It may however be unwise to be unaware of the warning from IMF Chief Christine Lagarde, that financial markets may be a little too optimistic, given that recovery is still lagging in Europe, one of the UK’s chief export markets.
It would also appear that not everyone is enjoying a boom if the reports are correct about UK businesses being in arrears with VAT, calculated as having have risen by £100 million to £2.6 billion in 2013, according to business finance provider LDF.
The Bank of England’s Monetary Policy Committee is also concerned about signs of a weakening in growth in the second half of the year, pointing out also that real wage rates have not yet started rising, while inflation is edging up.
We should know that economic forecasting is by no means a precise science, and if we had forgotten 2008 was a big reminder that chancellors of the exchequer cannot ensure there will never be a return to “boom and bust” economics.
Business planning needs to take into account confidence or lack of it. Hope and spin are not much help to the small business deciding whether to seek funds to invest in the future or avoiding taking risks.
So, apart from continuing to keep a close eye on cash flow as a prudent measure, is it time for businesses to plan for growth? And who is going to back them by sharing their risk?

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

How does a small construction business plan in volatile times?

The construction industry is always a volatile sector whatever the economic circumstances but figures released over the last couple of weeks have been particularly so.
One survey (from Markit) showed a surge in house building in June, along with an increase in the number of workers being taken on by building firms.
Just a week later, figures from the ONS (Office of National Statistics) seemed to contradict this with a reduction of output by 1.1% in May and indications of a slowing in growth.
While the months being surveyed do not precisely match, this illustrates the difficulties for those working in the sector as self-employed or sole traders, effectively as micro businesses, who need to plan ahead.
As small businesses, many builders lack the security of future orders which relates to them reporting difficulties with securing finance, problems getting credit for the supply of materials and labour shortages due to their own fluctuating demand.
For all small business, being able to forecast and manage cash flow relies on market research and is an essential part of planning for both stability as well as growth.
The building sector has been characterised by many firms paying for the last job with income from the next job. This cycle clearly catches up with those firms when the next job is delayed or cancelled.
While stressful to be stuck in such a cycle, it can be resolved but needs either an injection of cash, or the assistance of a restructuring specialist. The initial advice is normally free but rarely solicited.

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

Are investors continuing to think short term?

 

A week ago ASOS, one of the UK’s most successful online retailers, announced plans to increase its investment in its warehousing and its IT as part of a longer term growth strategy.

Capital expenditure would therefore increase from £55 million to around £68 million and the outcome in the longer term would be an increase in ASOS’ sales capacity by £1 billion. In the short term the company’s operating margin up to August this year would be reduced from 7% to 6.5%.

Almost immediately after the announcement was published ASOS’ share value dropped by 20%.

Surely this company was being sensible in planning for growth in the longer term.  Isn’t this kind of thinking exactly what the business community should be doing?

Here yet again, we would argue, is an example of the kind of short term thinking that is endemic among investors and other “rent” seekers.  Or are we missing something here?

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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.