The recession hokey cokey…

You know how it goes. Last week we were in a recession, this week we’re out. In, out, in, out, shake it all about. What’s a poor business to do? In a nutshell, what it does best, as well as it can, and a darn sight better than its competitors.

Working on strategies and budgets with various clients at present, I have been presented with statistics which show this GDP growth or that consumer confidence. It is all valuable stuff but at the end of the day for most small and medium sized businesses it is about developing opportunities and growth based on your strengths and your efforts. It is no longer possible to rely on economic growth to deliver business growth.

That is why understanding your numbers and what they mean for profits and cash flow is so important. If you can do this, you can use your market awareness to put together realistic action plans, targeting potential new clients that are creditworthy and that can deliver real growth. You can also assess current clients and the opportunities that they can present. Of course there are threats to take into account. However strategic financial planning involves understanding and managing risks so you can reap the benefits.

How you view the economy is often dependent on your own personal attitude to life. Do you see the Olympics as a disruption or opportunity? As regards the stock market are you a bear or bull? Do you think an extra day’s holiday for the Queen’s Jubilee is a headache or a chance to create a feel good factor? In short is your glass half empty or half full? Entrepreneurs are inherently optimistic. Finance Directors are less so. This is a good mix for a sustainable future.

The “good times” of the last decade are long gone. The likelihood is that the only economic certainty over the coming months will be uncertainty. We’ve all had to learn how to deal with that over the past few years haven’t we? It is now time for us to put what we have learned into practice to move our businesses forward. Whatever your mood, whatever your disposition, whatever your religion, have a good Easter break and then get stuck into doing what you do better than anyone else.

Don’t Give Up…..?

Whisper it but it has been a relatively benign economic slump to date. Obviously not for those who have lost their businesses and jobs or have seen inflation and low savings rates ravage their income and living standards. But anybody who can recall the previous slumps of the 70s, 80s and 90s will probably agree that we have been let off relatively lightly so far.

Insolvencies have still to really take off as the poor results from Insolvency practitioners show. Unemployment, whilst at its highest level since 1995, has not reached the emotionally fraught level of 3 million. Repossessions are minimal. Low interest rates are playing their part in all this. Equally, even if the banks aren’t actually lending enough, they are at least not pulling the plug on businesses in the way that they did 20 years ago. Owners continue to dip into their pockets to keep their businesses afloat.

Entrepreneurs are by their nature eternally optimistic. They will solve their problems. A new opportunity will emerge to for them to exploit. Yes the business may be “technically” insolvent, but this order or that cash injection is just around the corner. The wages will be paid. Key suppliers will be paid. Even HMRC will be paid…eventually. There is no need to seek insolvency advice just yet. And indeed they are often right, the business does get through its sticky patch and is still around many years after it was “technically” insolvent.

This is an approach to business that would cause those of us of a more pessimistic (or realistic) nature sleepless nights. It was certainly a real culture shock to me when I entered SME land from the cosy cocoon of corporate life where there was a treasury department that made sure cash was flowing into the right places (like into my bank account at the end of the month). This though is the attitude that ultimately builds winning businesses.

Having said that, it is also an attitude that can sometimes lead to broken lives and seriously out of pocket creditors fighting for their own business survival. I have observed many businesses that have been, how shall we put it, in fragile financial health. Some have survived against the odds due to the energy and never say die attitude of their owners. Oh, and the fact that the financial difficulties were genuinely of a temporary nature. However I have also seen businesses that were too far gone, only continuing because their owners were in complete denial about their situation to the detriment of both their wealth and their health.

Of course this could all be the calm before the storm. Interest rates will eventually have to rise. There sadly will be casualties. There will be business owners who will have to give up. Make sure that you don’t fall prey to false optimism. Better still make sure that you have the necessary financial systems and controls in place to ensure that you know about your problems in good time to do something about it.

Feeling good – for now…..

The latest business trends survey released this morning by BDO , the accountancy firm, reveals that business confidence  has reached its highest level for four years.  This pretty much fits with much of the anecdotal evidence that I have gleaned from clients and contacts over the past few months, and is a welcome antidote to the gloom and doom that has been prevalent for the last year or so.

But anybody who takes this as being the end of the recession and the beginning of a glorious sustained recovery is being a tad naïve. As the survey itself says, much of the boost in output has been down to companies deciding to re-stock after letting their stock levels run down during the recession, and that a significant, and as yet unidentified, increase in private sector investment is needed to keep any recovery on track.

Many businesses that have cut things back to the bone in response to the downturn are now having to get their stock levels back to a least a reasonable level.  Building maintenance and basic equipment upgrades can only be postponed for so long.  But like the VAT reduction and quantitative easing, these are only going to be one off boosts to economic activity.

UK economic growth is driven by public sector spending, consumer demand, business investment, and export activity.  It is the latter two that are likely to lead the way out of this recession, and given the comments above regarding investment and the fact that global demand is still not exciting enough for there to be a strong expansion of exports, the situation remains fragile.

Add to this the fact that businesses are understandably not believing any pre election pledges about what the parties intend to do, and are waiting for the reality of the post election economic situation and the actions that will be necessary to deal with that, you can understand why I am still cautious about the immediate future.

I still believe that it will be up to businesses to make their own recovery in 2010 (and maybe even 2011), and that the basics of business planning and financial management that many companies have had to revisit during the recession will play a key role in any success they hope to achieve.  There is still a long way to go.

It’s All Over Now….Or Maybe Not….

It’s official – we are out of recession , albeit not very convincingly, with growth of only 0.1%. This is of course subject to revision because the Office For National Statistics (ONS) have so far only received 40% of the information that is required to make the necessary calculations. Therefore it could go up (hooray!), or it could go down (boo!), which then means the recession is not over after all.


I am not an economist but growth of 0.1% doesn’t appear to be particularly impressive, particularly given all of the stimulus that has taken place so far, and the fact that we have had Christmas and a pre-VAT increase spending splurge as well.

Anyway time will tell as to where we are statistically, but in the real world there remains a lot of uncertainty, which is not going to go away whatever the figures say.

However something else recently caught my eye, which is a little more concerning, and probably has a greater bearing on our long term growth prospects. According to research from Manchester’s Centre for Research in Socio-Cultural Change (CRESC) the expansion of public sector activities has been the main engine of growth in the economy since 1998, and has largely masked the decline of the private sector .

Quoting from the abstract of their report, their argument is that “the UK has an undisclosed model of using publicly supported employment to cover the continuing failure of the private sector to generate and distribute welfare through job creation”. In essence, according to CRESC, even the increase in private sector jobs over the past twelve years has primarily been the result of public sector activities.

Strong stuff but is it fair? We are all aware of the continued jibes about the growth in public sector “non jobs” over the past few years, but the thought that all those “productive” private sector jobs owe their existence to the state as well takes some getting used to.

Perhaps it is time for the “entrepreneurial” private sector to fight back and show how it can efficiently and effectively “generate and distribute welfare through job creation”. The country certainly needs it to happen.

It's a VAT trap......

I tend to count myself as one of life’s optimists (supporting Spurs tends to do that to you), and I have no doubt that sooner or later we will be out of recession, and enjoying a period of steady, if maybe not exciting, economic growth. The creativity, determination and energy that I have seen over the past twelve months, as business people old and new have faced up to the reality of the economic situation and looked at how to improve their way of doing business, and the goods and services that they provide, has left me convinced of that.

However the accountant in me can never stop looking at potential downsides, so that I can ensure that I have some contingency plans in place to cope. One big lurking downside, along with dealing with the government deficit and the requirement to slash (there is no other word for it) public expenditure, with its consequent impact on unemployment, is the end of the VAT rate cut stimulus that the government put in place at the end of last year.

I fear that this has been forgotten among the various sightings of green shoots and the FTSE index rocketing over the 5,000 mark, but come 1st January 2010 VAT will be back up to 17.5% (or even 20%). Once again systems will need to be changed, wasting valuable time and money, but what will be more interesting is how many businesses will increase their prices as a result. I am sure that most of you will have noticed that since the much trumpeted “point of sale” VAT reductions that major store groups put in place last Christmas, prices have more or less drifted back to their pre-reduction levels. Will there be an increase in prices over and above their pre-VAT cut level, or will firms have to swallow the increase putting even more pressure on profits and cash?

Savvy businesses will have used the VAT reduction to squirrel away some cash (something that I advised clients at the time, believing that this was a better use of the rate reduction rather than adding to the discounts that were already in place for bargain hunting consumers), which they can use to support their businesses in 2010. For other businesses the VAT jump is going to be yet another hurdle for them to overcome. Hopefully it won’t be one too many.

The Only Way Is Up?

Testing times, unprecedented times, uncertain times.

That was the general message of the 5th Hart Brown Annual Economic Forum entitled “Navigating The Recession” which I recently attended at the University of Surrey in Guildford.Now that is clearly not an unusual message in today’s economic climate, but maybe what was less usual was the quality of the speakers that Hart Brown, the Surrey based firm of solicitors had brought together to provide that message. Mark Curtis, managing director of key Surrey manufacturers Vision Engineering, Giles Keating, Global Head of Research at Credit Suisse, and everybody’s favourite politician Vince Cable offered a range of insights that left the 300 plus attendees in no doubt that they would need to be bold and brave if they were to take advantage of the post recession world.

Looking at some of the previous blog entries, there is a danger that we are becoming cheerleaders for the Lib Dem Shadow Chancellor, but when he continues to offer the clear, concise and reasoned arguments that he did at the forum, then it is hard not to keep cheering and waving. Pointing out that the current problems stem from a collapse in asset prices, a reduction in credit and a global recession he took the view that rather than suffering from a dose of flu, the economy had suffered a very big heart attack, which would necessitate a radical change in lifestyle once recovery was underway.He saw three obstacles to recovery: the need for high interest rates to combat potential inflationary pressures, the size of the deficit being run up by the current government and the fact that the banks were still not functioning properly. Nevertheless, positive signs included the fact that governments globally were doing all that they could to combat recession, that many UK companies were still doing well, including many world class ones, and that there was a high level of flexibility in the labour market and a willingness to accept short time working and pay cuts to preserve cash and jobs.

Giles Keating had flown over from Zürich especially for this forum and began by saying categorically that the recession would be over this year. He focused on four questions during his presentation, namely how robust the recovery was, whether the emerging markets would replace the US consumer as the driver of growth, will inflation surge and are we seeing the start of a new equity bull market? He was armed with an impressive array of charts and statistics which he used to indicate that there was some substance to the recovery, that he believed that the world that emerged would be vastly different and that the emerging markets would be the dominant forces in the new economy, that inflation could be contained and that there was every chance of a return to a bull market in equities.

Having heard from a politician and an economist, it was nice to get a view from a real business. Vision Engineering is a manufacturer of optical instrumentation, much of which is exported, and its managing director, Mark Curtis, professed to be baffled by macro economics, preferring to focus on achievement based on an honest day’s work. He outlined some of the actions, both precautionary and emergency, that his company had found necessary to take to cope with the significant fall in orders that his company had faced. He emphasised the need for developing strategies based on clearly defined problems in each of his key markets, and then using leadership to instil the confidence required to move the business forward. His conclusions centred upon what should now be considered as realistic growth and the importance of not being beholden to the banks or uninformed shareholders, along with some pithy comments about the lack of joined up thinking at government level.

All in all a very interesting and enjoyable evening, and one which left plenty to think about as we drifted off into the night after our drinks and canapés.

Look after your suppliers? No really - look after your suppliers….

The announcement that Zavvi, the music, games and DVD retailer is to close down for good, has brought home a salient point about the recession that often gets overlooked in those “top tips on surviving the recession” listings.

Nearly everybody will suggest that you imagine a scenario when one of your top customers goes bust, but very little emphasis is put on the situation when one of your main suppliers goes the same way. Yet that is precisely what has happened in this case, where the key supplier in question was Entertainment UK, which was a casualty of the Woolworths demise. Not only did Zavvi lose its key supplier at a time when it desperately needed stock i.e. the run up to Christmas, but more importantly it lost valuable credit facilities, which could not be replaced as new suppliers demanded immediate payment.

A salutary lesson for everybody - when your key supplier goes down not only do you lose products that you need for your business, you potentially lose a valuable source of finance. One to add to those key financial relationships that have to be managed.

Look after your suppliers? No really - look after your suppliers….

The announcement that Zavvi, the music, games and DVD retailer is to close down for good, has brought home a salient point about the recession that often gets overlooked in those “top tips on surviving the recession” listings.



Nearly everybody will suggest that you imagine a scenario when one of your top customers goes bust, but very little emphasis is put on the situation when one of your main suppliers goes the same way. Yet that is precisely what has happened in this case, where the key supplier in question was Entertainment UK, which was a casualty of the Woolworths demise. Not only did Zavvi lose its key supplier at a time when it desperately needed stock i.e. the run up to Christmas, but more importantly it lost valuable credit facilities, which could not be replaced as new suppliers demanded immediate payment.



A salutary lesson for everybody - when your key supplier goes down not only do you lose products that you need for your business, you potentially lose a valuable source of finance. One to add to those key financial relationships that have to be managed.

I've got the brains, you've got the looks....

Wednesday 21 Jan 09 - Back in the 80s the Pet Shop Boys banged on that "There's a lot of opportunities, if you know when to take them, if there aren't, you can make them".

It is easy to think at the moment that opportunities are in short supply but talking to Henry Camilleri of independent financial advisors Camilleri Associates this morning at a breakfast seminar organised by Clydesdale Bank, it was interesting to hear that he has used the current wave of redundancies by major insurance and investment firms to increase his network of experienced financial advisors. As he said, the chance to bring on board some highly talented people that would not normally be available to him was too good to pass up, and has enabled him to add some weight to the strategy that he has set out for himself to improve his business in 2009. This was one of the points we made in our recent SMART presentation so it was good to hear of a practical example.

The topic today’s seminar was 'Doing business in a slowing economy' with Terry Irwin of TCii Strategic and Management Consultants, a common enough theme perhaps, but the point that companies need to get back to the basics of financial management in order to survive and thrive in the current market bears repeating again and again. Our hosts Clydesdale Bank also made this point in relation to the fact that their parent company National Australia Bank is currently one of the few banks that is relatively unscathed by the current banking turmoil. Terry Irwin believes that we should hit the bottom of this recession during 2009, with some small signs of recovery starting at the end of 2009 or beginning of 2010. Given the speed that the economy is unravelling, I would agree with his assessment about reaching the bottom, but would suggest that businesses adopt the advice of the Pet Shop Boys regarding opportunities in order to plot their own course to recovery outside of any general economic improvement. Henry’s actions above are good start along this road.