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

What lessons can be learned from the 1930s New Deal for post pandemic recovery?

New Deal and unamploymentThe New Deal was a series of measures introduced by President Franklin D Roosevelt to help the US economy recover from the Wall Street Crash and subsequent Great Depression.
It introduced a string of measures to better protect workers from ill-treatment and the consequences of unemployment and to better regulate banks and financial institutions.
As noted in the Encyclopaedia Britannica “Opposed to the traditional American political philosophy of laissez-faire, the New Deal generally embraced the concept of a government-regulated economy aimed at achieving a balance between conflicting economic interests”.
Perhaps one of the best-known Acts was the Glass–Steagall Act of 1933, which separated commercial from investment banking.
But the New Deal measures were also designed to stimulate and revive economic activity in agriculture and business, founded on the economic theory, as propounded by the UK economist John Maynard Keynes, that massive Government spending should be used to promote recovery and that spending cutbacks only hurt the economy.
Over the 20th Century the economic theory pendulum has swing back and forth between government regulation and a market driven laissez-faire economy with the later particularly being adopted by Margaret Thatcher.
The economic response to the Coronavirus pandemic and its consequences have opened the taps to flood cash into the market in a way that even Keynes would be impressed. Chancellor Rishi Sunak’s initiatives to protect businesses, employees and other vulnerable groups are similar to the measures introduced in the early days of the New Deal.
But as lockdown measures are eased what other measures might the Chancellor adopt to stimulate the economy?
Similar to that adopted in the 1930s, the Government is considering a spending spree on what are called “shovel-ready” projects, particularly the construction of infrastructure (roads, railways, internet, schools, hospitals and other projects) that will get some people back to work quickly.
Other ideas used then and being considered now are how to get consumers to resume spending, although this should be more than just re-opening retail, leisure and hospitality businesses.
With so many people losing their jobs or worried about their economic future, there is a real concern that consumers won’t spend. Perhaps despite other short-term initiatives that were not used in the 1930s such as a reduction in VAT (Value Added Tax) on consumer products, a reduction in NI (National Insurance) contributions for employers and employees, and training people for the future.
For businesses, particularly, some reduction in Business Rates, or even a revamp which has long been called for, and more flexible repayment of the Coronavirus loans (CBILS) may help but the landscape has changed and it would appear unlikely that we shall return to a pre-Coronavirus level of business. None the least due to the number of redundancies that are coming, and perhaps just as bad, the likely prospect that the purchasing power of fiat currencies will reduce significantly despite any artificial manipulation of inflation data.
While it is often said that a recession can be the best time to start a new business, as companies ranging from General Motors, Burger King, CNN, Uber and Airbnb did, it is arguable that the post-pandemic economic damage will be so severe that more even more radical New Deal-type of measures will be needed.

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Cash Flow & Forecasting Finance General Uncategorized

What is the difference between a Depression and a Recession?

recession and depressionBoth a recession and a depression are characterised by an economic decline but the difference between them is down to the length of their duration with depressions lasting years.
An economy is defined as being in recession when there have been two consecutive quarters in which growth as measured by GDP (Growth Domestic Product) has contracted.
This is usually caused by a reduction in business activity and consumer confidence, such that businesses may start laying off employees and cutting back on production and on investment as their focus shifts almost entirely to their cash flow and balance sheet.
In the most recent recession, in 2008, the precipitating factor was a liquidity crisis that began in the USA where banks had lent what was perceived to be too much money on what came to be seen as risky mortgages on which borrowers then defaulted. This resulted in a loss of confidence in banks, which declined to lend to each other which in turn led to a liquidity crisis.
Recessions are much more frequent than are depressions, indeed, according to an article in Business Leader in March this year: “In the past 100 years, there have been dozens of recorded recessions (both national and international) – compared to just one depression in the same time period.”
The last depression was in the USA beginning in 1929 and lasting for a whole decade. While not strictly defined, a depression is characterised by very high levels of unemployment such as 25%, a dramatic fall in international trade such as by as much as two-thirds, and prices falling by more than 25%. They are also characterised by significant declines in stock market values and a large numbers of bankruptcies.
There has been some speculation that the Coronavirus pandemic could precipitate a depression given how much economic activity has ceased as a result of the lockdown rules imposed by many countries. However this is simply speculation and the short term nature of its impact is unlikely to be the sort of once in a one hundred years event that causes dramatic and long term economic collapse.
The IMF (International Monetary Fund) has warned that the situation could provoke a recession as severe as in 2008 but none of the serious pundits are predicting a depression.
In fact, some economists argue that a repeat of 1929 could not happen because Central banks around the world, including the USA’s Federal Reserve, are more aware of the importance of monetary policy in regulating the economy and will therefore step in with support and stimulus packages to forestall this.
 

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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 Insolvency Rescue, Restructuring & Recovery

“Unknown unknowns” and the Fed's failure to confront reality

Will they? Won’t they? Should they? Shouldn’t they?
Every business analyst has been pondering whether the US Fed’s Open Market Committee would raise interest rates this week. Now we know with one exception there was a collective failure of nerve and interest rates have been held at their current level.
In essence the first rates rise since 2008 would have signalled the start of a return to normality and an indication that we are coming out of recession, which in our view would have been welcome. But clearly they bottled it.
The BBC’s Robert Peston opined that there was never a risk free time to raise interest rates. Indeed there is no comparison in history from which to infer the possible consequences.  This is because there has never previously been such a long period of near-zero rates.
This view was shared by business writer Hamish McRae, writing in the London Evening Standard on Monday.
We know some of the drawbacks of low interest rates.  Savers suffer because their savings earn them little or nothing. Borrowers, particularly household borrowers with mortgages, gain because they pay less interest although all too few have used this as an opportunity to pay down debt.
The fact is that those with a large debt, be they an individual, a business or a national economy, would face increased costs in paying back the debt following a rate rise and that would impact on future plans.
Plainly the worry about the destabilising effects of a rate rise on emerging economies (particularly Russia, Brazil and China) and the potential pain from rising prices and increased repayment costs for those that are have borrowed heavily to finance their economic growth played its part in the Fed’s decision.
But perhaps most of all the question of timing that has been exercising people and the “unknown unknown” of what a rate rise would do to a less than stable, post-2008 global economy was what justified the Fed for “wimping out” by kicking the can down the road.
Another “unknown unknown” may have contributed to their failure to confront reality, that of being held responsible for the unknown consequences.
We do, however, know that cheap money has distorted the markets and may have stored up potential for a crash. Such financial bubbles can only grow while interest rates remain low and the reality is that if a bubble is growing then the next crash will be bigger the longer it is put off.

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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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Business Development & Marketing Cash Flow & Forecasting Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround

Business improvement is a continual process

As people become a bit more comfortable in their businesses, growing and selling more, it is easy to forget the basics.
It is easy to do when the pace has picked up and everyone is busy keeping on top of all the extra work.
However, all businesses will experience ebbs and flows of activity and if they do not keep on top of the “housekeeping”, not only will they not be forewarned when a fallow period is looming, they will not be ready to deal with it.
Good practice means continuing to monitor the cash flow, regularly reviewing the management accounts, making sure the tracking of orders from start to invoice and including credit limits for customers and payment terms are adhered to.
Keeping an eye on debt collection is one of the activities that can slip when things are going well.
Continuous business improvement means finding new efficiencies, cost savings and better quality as an incremental process with the aim of building a more sustainable business.
This is especially important when times are good as it prepares a business for survival during recession.
There is no right or wrong way to do this. It depends on the individual business but among the items that could be regularly reviewed are reporting of management information, production or service speed and quality, bought in and inventory stock levels, working practices, safety and environment, staff training, marketing and communication, all initiatives to relentlessly make a lasting and beneficial difference.
Maintaining good habits like this will help to smooth out the inevitable peaks and troughs of business and ensure fewer nasty surprises.

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

Has 2008 changed the pattern of insolvencies increasing on an upturn?

An increase in insolvencies used to be a reliable signal that the economy was coming out of recession.
Six years after the Great Recession in 2008 we are being told that our economies are growing, the recession is over, SMEs are reporting increasing orders yet there is still no sign of an increase in insolvencies.

So what is going on?

The reason that insolvencies rise in an upturn is because two things happen.
Firstly companies start to get an increase in orders, but unless they manage their cash flow carefully, or have adequate reserves of capital they risk overtrading – essentially not being able to fund the growth.
Secondly, secured creditors generally only call in loans when they think there is a fair chance of recovering their money, therefore during an upturn and in particular when the secured assets increase in value.
The consequence is that when creditors start to demand their money back and a company is overtrading it can’t realistically pay off the loan – the result is insolvency.
So in our view, the recession is not yet over, markets remain jittery, confidence is still uncertain and asset values are falling, hence fewer insolvencies.
Have we simply papered over the cracks?

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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 General Insolvency Rescue, Restructuring & Recovery

Are We About to See a Rise in Insolvencies?

New research by the insolvency industry’s trade body, R3, has found that the number of zombie companies has gone down by just over 50,000 since November last year.
Zombies are defined as companies that are only paying off the interest on their debt.  However, R3 also found that more SMEs are now in distress as they struggle to negotiate new payment terms with lenders or to repay loans when they fall due.
As banks have been set new targets for improving their capital reserves they are unlikely to do anything other than improve their position.
However we at K2 believe they are also unlikely to pull the plug, so the march of the zombies will continue for some time.
As a result we are unlikely to see the number of insolvencies rise until interest rates are raised. Indeed any significant rise in interest could cause the carnage that normally follows a recession where it is in fact evidence that the economy is coming out of recession.
What’s your view? Are we about to see a rise in insolvencies?

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

Culture Shock

If all the recommendations in the Banking Commission’s long-awaited report on banking standards are implemented the banking industry will undergo a profound change in its operating culture.
We would argue that it is not only in banking and finance that a change in culture is long overdue following the 2008 credit crunch.
Businesses and consumers have already had to rethink the way they manage their finances. Businesses have been paying down debt and larger companies with comfortable capital reserves are not spending or investing. Consumers, too, are trying to repair their finances while coping with rising inflation and falling incomes.
Depending on which audience they are speaking to, however, Government seems to be wedded to austerity, sustainability or growth, as the solution to the UK’s economic ills.  
Every new monthly statistic is used to herald imminent recovery.  Most recently, new figures showing a 17% rise in mortgage lending in May 2013, compared to May 2012, will doubtless be seized on as evidence of success for schemes like Funding for Lending and the newer Help to Buy in stimulating home ownership.
Yet all the “experts” warn that without massive additional home building, they risk precipitating another housing bubble because the lack of affordable small homes will overinflate house prices.
With the homeless charity Shelter estimating that a first time buyer may have to spend 14 years raising the deposit to get on the property ladder, the chances are that consumers are already facing a massive culture change from home ownership to long-term renting, but without the tenancy protections that used to provide some security and continuity in living arrangements.
Is it time that politicians stopped grasping at short term electioneering straws and underwent their own cultural revolution to get real about economic life in the 21st Century?

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

Is Starting a Business in a Recession Wise or Foolish?

It is no secret that the Government is relying on SMEs to stimulate both the economic recovery and jobs.
Lord Young, senior adviser to the Prime Minister, is on record as saying that a recession may actually be a good time to start a small business on the grounds that wages are low, competition may have fallen by the wayside and premises, too, may also be cheaper to get.
That’s all well and good but there is more to starting a business than having a bright idea and the passion and motivation to get started.
There are a number of other factors to consider, especially where the business is something new and innovative and therefore unlikely to raise finance from currently risk-averse banks and investors.
A start-up must carry out research, identify potential customers, set sensible targets and put all of this into a business plan.  If it needs finance it should consider alternatives to the mainstream sources, whether these are friends and family, partnering with existing firms, seed funding, crowd funding or business angels and also investigate what grants and special concessions may be available that will help in the first year or two of trading.
A mentor or business guardian to help set the path and keep things on track can also make the difference between success and failure.  It’s impossible for a novice to do everything themselves without support and joining local business networks can also be a valuable source of advice and support.
If it is the kind of venture that can benefit from collaboration with other enterprises where there is a synergy, this is an option worth exploring since partnering with existing businesses in a market will help a start-up forge relationships with both a supply chain and  potential customers.
When money is tight, entrepreneurs should explore cash saving ideas such as offering equity, or future work, or future discounts, or other benefits in kind to any business that can provide them with useful services. Examples include introduction to customers, advice, market research, book keeping & accountancy, manufacturing prototypes, provision of office space, use of specialist or expensive equipment, and many more ideas that are only limited by the entrepreneur’s imagination.
Recession or not, starting up a business is all about doing all you can to weight the odds in your favour.

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General Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Turnaround

Falling Confidence Among SMEs Supports Evidence of a Long L-Shaped Recession

Recently released insolvency figures show relatively little change year on year, suggesting that the debate about whether the recession would be a V-, U-, W-, or an L-shape Is now over.
It is four years since the economy collapsed and the evidence is piling up that it is flatlining. Whatever the technical definition for coming out of recession may be (ie two successive quarters of growth), a growth of 0.2% for the UK economy means it continues to bump along the bottom of an L-shaped economic decline, whether it is called a recession or not.
Had the recent decline followed the pattern of previous ones the numbers of insolvent companies would by now be climbing noticeably, as they are generally held to do when an economy is on the road to recovery.
However, the latest CBI quarterly survey shows a sharp decline in confidence among small and medium sized businesses, reporting flat domestic orders in Q3 and export orders down by 8%. They expected domestic orders to fall by another 4% in the final quarter, no growth in exports and were indicating intentions of reducing their stock holdings – hardly suggestive of any optimism there.
Perhaps the most interesting feature of the just released quarterly insolvency figures is the noticeable increase in the number of Company Voluntary Arrangements (CVAs) relative to the numbers of companies in Administration as going concern formal insolvency procedures. Compared to the same quarter last year, CVAs rose by 29.6%, while Administrations rose by only 6.3% perhaps reflecting the adverse publicity over the use of Pre-Pack Administrations.
Many commentators are predicting a lot of insolvencies lining up for the end of Q4. Since a rise in insolvencies traditionally indicates the emergence from recession, perversely, this suggests that they are being optimistic rather than pessimistic.
But if the economy doesn’t recover and there is a rise in corporate insolvencies, this will be truly damaging for the UK. There is a huge difference between insolvency to restructure a business to prepare it for growth and insolvency to close it down.
Continuing low interest rates and no discernible evidence of banks or other creditors really piling on the pressure, nor any sign of the restructuring that normally indicates the bottom of a recession, plus the plummeting confidence of the country’s SMEs, suggest that the economy will bump along the bottom Japanese-style for the foreseeable future at best or will decline further at worst.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Leadership, Restructuring and the Eurozone

The Germans and other northern members have benefited from the Euro effectively fixing the exchange rate that has made it easy and relatively cheap for them to sell their cars etc to southern members to whom they lent money to buy their cars. This is very similar to the banks lending money to customers who spent it.
The issue then is who takes responsibility for the debt and managing the Eurozone fallout. Do lenders write off debt, or do they lend more such as via Eurobonds or Quantitive Easing (QE) with terms that impose huge penalties. This latter route is similar to the reparations that planted the seeds of the second world war, a subject that has recently been put on the table. Or do lenders defer payments that allow for a fudge whereby loans are repaid over an extended period that effectively allows inflation to devalue the loans.
The UK has opted for the fudge route and will avoid banks defaulting through QE, low interest rates and using inflation to reduce the cost of repaying debt. While most borrowers will benefit, those with assets, savings and reserves will see them devalued while the debt overhang is cleared. Although this is regarded by many as a mistake, we saw in 2007 and 2008 what happens when banks default and are right to avoid bank defaults.
Europe however has yet to find a solution whether it is by managing southern member defaults, or providing more loans to avoid default. The problem facing European leaders is that they need to be strong and stand up to their electorates if the lessons of history are to be applied.
While European leaders find their backbone, in UK our political leaders are looking decisive, a tribute to both Darling and Osborne. Inspite of the decisions taken it will still take a long time to clear the debt overhang with a floating exchange rate and inflation to reduce debt and low interest rates to smooth the way.
Most UK companies that have undergone restructuring have much stronger balance sheets and are building reserves ready to take advantage of the Eurozone fallout. However there are still many more UK companies, that like many European members, have weak balance sheets and continue to struggle while they and their lenders put off the inevitible restructuring.

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Banks, Lenders & Investors Business Development & Marketing Debt Collection & Credit Management General Insolvency Personal Guarantees Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Latest insolvency stats suggest Zombie companies are still hanging on

The latest Insolvency stats suggest that Zombie Businesses are holding back the UK Economy.
A summary of the Q2 2011 UK insolvency statistics shows: Compulsory Liquidations up; Voluntary Liquidations down; Administrations down and CVAs static.
Against a background of slowing growth over the last three quarters of the UK economy, perhaps the picture of what has been going on is becoming clearer.
Unlike most insolvency and turnaround practitioners, I do not believe that we will soon be busy restructuring the large number of over-leveraged businesses.
I believe businesses are putting off restructuring and will do so for as long as possible, at least while the economy is uncertain. Historically insolvencies have increased during the upturn after the bottom of a recession, when business prospects can be predicted. Right now it is not clear if we have reached the bottom and if there will be any growth, let alone how much, or if the market will flatline for some time.
One set of figures, the increase in compulsory liquidations, does indicate a level of frustration over companies not taking action to deal with their debts. Creditors are becoming impatient with directors who are putting off restructuring and starting to force their hand by issuing a winding up petition. But even these figures are very low.
The tragedy is that without restructuring, a great many so called ‘Zombie businesses’, lack optimism to plan for the future. They have run down their stock levels, cut staff to the bone, do limited marketing, are not investing nor looking for growth opportunities let alone looking abroad and are not laying foundations for their future.
The lack of optimism is resulting in quality and service levels being in decline and as a result they are holding back economic recovery because they are not investing in it.

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

Are Estate Agencies Safer Businesses Now than they were in 2008?

The sub prime mortgage crisis that precipitated the 2008 global recession led to plummeting property prices, very limited mortgage lending, repossessions and to a dramatic slump in the housing and commercial property markets.
Estate agencies were among the first businesses to feel the effects of the crisis. By December 2008 an estimated 40,000 employees had lost their jobs while around 4,000 estate agency offices -approximately one in four – had closed.
The smallest agencies, of perhaps four or five branches or less, were worst affected particularly if they depended solely on property sales.
So is the worst over now for the estate agency business? Not if the most recent information on the housing market is any indication.
Gross mortgage lending declined to an estimated £9.8 billion in April 2011, down 14% from £11.4 billion in March and the number of mortgages approved for house purchases hit a new low in April, at 45,166, the lowest April figure since records began in 1992.
The Council of Mortgage Lenders predicts that the numbers of homes repossessed will rise from 36,000 in 2010 to 40,000 in 2011 and 45,000 in 2012 and the online housing company Rightmove reports that average unsold stock rose from 74 to 76 properties per branch, reaching the highest ever level for May.
Although the housing market varies significantly in different parts of the UK, with London booming and East Anglia holding steady while the north suffers there is also evidence that the demand for rented property and buy to let property is rising along with rent levels.
None of this suggests that the business of estate agency is likely to be any more secure for a few years yet.  If the High Street agents are to survive they need to revisit their business models, diversify their activities into letting, make use of online marketing and be sure they are up to speed on all the regulations governing landlords’ and tenants rights’ and other property letting regulations.

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

Saving the High Street

Retail pain continues with the news that Mothercare is to close a third of its 373 UK stores.
JJB Sports has just announced losses 0f £181.4 million for the year to 30 January 2011, three times the previous year’s loss of £68.6 million and plan to close 89 of their 247 stores over the next two years.
And HMV has just had to sell Waterstone’s for £53 million to pay down some of its £170 million of debt. In addition, they also propose to close 40 stores.
Oddbin’s too, has gone like most other wine retail chains, following its failed attempt to agree a restructuring plan with creditors, which was rejected by HMRC.
Plainly there is a major earthquake taking place on the High Street, and it is not all about cutbacks in consumer spending. More importantly retail purchasing is changing. Consumers are becoming sharper shoppers by looking elsewhere, not just in the High Street.  They are visiting dedicated retail parks combining shopping and leisure to offer an experience, entertainment and convenience in one place and are also increasing their online spending.
The government has recently asked Mary ‘Queen of Shops’ Portas to take a look at the country’s High Streets and come up with suggestions for rescuing them, clearly hoping to find a way of rejuvenating this part of the UK economy.
She may well conclude that the competition from shopping and leisure centres with their easy access via car and public transport is too much and that the High Street can survive but only if it offers something different.
Locals still like to buy from local shops that provide a personal service, ideally selling local produce such as farm-sourced. This ought to support retailers like the grocer who lets you taste a piece of cheese before you buy, independent butchers who will advise, trim or even marinate meat and local bakers. Pubs, restaurants and cafes that cater for families, young people, the elderly all play their part in supporting community, even the self-help run library. But for the High Street to avoid further decline, everyone needs to work together and this will require leadership.
You never know, the High Street may be once again be a place where shopping is an enjoyable experience, but what will it look like?

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

The Deadline for Repaying Bank Bail-out Money Implies Continued Pressure on Business Lending

British banks have until 31 January 2012 to pay back the money made available to them by the Bank of England since April 2008 through its Special Liquidity Scheme, the support that was provided following the temporary public ownership of Northern Rock in the UK, the collapse of Lehman Brothers in the US and the onset of the global economic recession.
Where is this money is going to come from? The likely answer is from businesses and customers. While banks are likely to borrow some money via issuing corporate bonds in the marketplace it is unlikely there will be much inter-bank lending.
So it is reasonable to assume that banks will make up the difference by withdrawing money from the marketplace, that is from businesses and individuals from repayment of loans and overdrafts.  In addition to reducing existing loans, it will be difficult for banks to find new money for lending and businesses and other borrowers will find it harder to agree loans, and even if they are successful will find that repayment terms will be stricter and more costly.
The amounts involved are almost too big to imagine.  The amount due to be repaid is £185 billion which is similar to the combined value of the UK’s four leading banks (LloydsTSB, Barclays, HSBC and RBS).
At the same time the banks know they face tighter regulation on lending and capital reserves under new regulations, called Basel III, from the world’s banking regulator. Meeting these new requirements will require banks to raise substantial amounts of fresh capital placing further burden on the lending market.
At the same time the Government has now introduced a series of measures, including a rise in VAT, higher National Insurance Contributions and public sector cuts, aimed at reducing the country’s budget deficit.  The bulk of businesses on which the economy depends are small traders and entrepreneurs and if they are experiencing a combination of higher costs and tightly restricted lending they cannot plan for growth and increasing the profits they would need to be able to expand and in fact should be focusing on cash management and cash flow in order to survive.
It is difficult to see how a long gentle decline can be avoided in these circumstances, when the fact is that the banks must find the money for repayment somewhere. Double dip recession?

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

Survival sometimes needs Fundamental Change

Any successful business would be expected to be constantly monitoring its activities and modifying them where necessary to improve the efficiency and its various offers.
Continuous business improvement does two things: it optimises existing processes and keeps them optimal by continually updating them. 
But on its own, especially when there are significant challenges in the wider economy, such as the current global economic downturn, continuous improvement may not be enough.
Such unexpected challenges can plunge a business into difficulties where its survival may be at stake and this may mean looking at a fundamental change to the way it operates.
Too often businesses struggling to survive, are characterised by hard work and trying to improve the existing business model before they fail.  Business improvement is all about laying foundations, tweaking the system and improving. 
In my view fundamental change is a more radical look at the whole operation but it also needs care to avoid throwing the baby out with the bathwater by looking hard at the business and what needs to be preserved in order to survive and grow in the future. However, if a business tries to grow before bedding in new foundations following fundamental change it will reinforce problems that had not been sorted out.
For example in a downturn it is an understandable reaction for a business to trim its costs when it may be better to have an in-depth look at its business model and be open to more radical changes.
This can all seem too much when a company’s directors are struggling to keep a business afloat at a difficult time.  It is possible to be too close to the problem, however, and a combination of worry and a sense of urgency is not ideal for taking an objective look at the whole business model.
This is where calling on a business turnaround adviser could make all the difference between success and failure.  The adviser is motivated to help a business succeed and will expect to work with committed managers and staff, but they are not so immersed in the day to day minutiae of the operation and can therefore look at all aspects of the business, identify what is viable, what processes are draining the company and what actions can be taken.

Categories
General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround

Are Government Insolvency Statistics Concealing the Number of Insolvent Companies?

As a consequence of the global financial crisis it is reasonable to assume that the numbers of companies in financial difficulties serious enough to precipitate insolvency would be increasing.
However, figures for the second quarter of this year released by the UK Insolvency Service in August show that there were 2,080 companies in England and Wales that were placed into liquidation.
These are made up of compulsory liquidations and creditors voluntary liquidations and showed a 0.5% increase on the previous quarter but a decrease of 19.1% on the same quarter in 2009.
Compulsory liquidations were down 9.9% on the previous quarter and 21.0% on the corresponding quarter in 2009, while creditor voluntary liquidations were up 5.4% compared with the previous quarter but down 18.3% compared to the same quarter in 2009.
It would be tempting to infer from these figures that the economy is beginning to recover and the pressure on companies is easing.
It is possible, however, that the decline in liquidations is concealing the number of companies in financial difficulties because of a lack of pressure from creditors other than the HMRC (Her Majesty’s Revenue & Customs ), the only active creditor currently seeking winding up orders in the courts.
The Government’s Comprehensive Spending Review in October may reveal the full impact on UK insolvencies.
Even if the UK avoids a double dip recession, there is a risk that the UK economy could develop a twin track economy, with public-sector-dependent industries facing higher levels of financial distress than sectors which are less directly linked to government spending cuts.
Some commentators argue that while Corporate insolvencies are still well below the numbers that would normally be expected at this point in the cycle the slight quarterly rise in the number of liquidations may signal that conditions are starting to turn against UK companies once again.
The lower than expected number of insolvencies is ascribed to a variety of proactive measures, HMRC Time to Pay arrangements and bank forbearance, together buying time for companies to deal with their financial situation. However, this may perhaps have only delayed the inevitable for others that are less robust or those that fail to use the time by taking remedial action to reduce costs or implement other steps that ensures survival.