Time to remember….

 11am Sunday in a little town in the north west part of Surrey that used to be known as Middlesex . Hundreds of people of all ages huddled around our local war memorial. Maybe it’s me but there seem to be many more people there than last year. All gathered in silence to remember those who gave their lives in the service of their country.

To my shame I never used to make that short trip up to the high street. Oh I would buy my annual poppy and pay lip service to Remembrance Sunday but that was it. It took the involvement of my daughters in the Remembrance Day parades, through their guiding activities, to finally get me to show proper respect. The irony of the next generation leading me to this rather than the previous generation is not lost on me.

Maybe it was because as a sixties child I was the last generation that was still living in the shadow of the Second World War. We all had grandparents who had fought in it and parents who had experienced it through bombing raids, evacuation and rationing. War films were commonplace on TV. Our Action Men fought the Germans. We enjoyed living off of our victories in 1945 (and 1966).We even laughed when Basil Fawlty told us not to mention “it”. It was still real to us even if we hadn’t experienced it directly. We were constantly being pushed to remember “the War”, and as a result that day in November was perhaps not special enough.

Then we had our first real experience of our own war through the Falklands conflict. It may have happened on the other side of the world and not really affected us at all, but it was a reminder to us that we had an army that could be sent off to fight (as opposed to their deployment on home soil in Northern Ireland). Subsequent involvement in Kuwait, Kosovo, Iraq and Afghanistan has shown us that sadly our soldiers continue to die on active service.

65 years after the last truly global conflict the importance of remembering is probably stronger than ever. My daughter is currently part of a project to ensure the horrors of Auschwitz are not forgotten. Every new generation needs to take on board the lessons of the past so that they do not end up experiencing it for themselves.

I am not going to make any fatuous attempt to draw any parallels with Enterprise Britain. Sometimes we all have to put aside our daily challenges, problems and grumbles and just take some time to remember. For their tomorrows, if not today….

You’ve been Serco-ed…..

Ha Ha Ha. I have to admit to being extremely amused by the recent Serco fiasco. Having told the Government that, yes of course it would work with them to cut costs, their FD, Andrew Jenner, then turned around to their suppliers and told them that, er  they were going to be the people to be providing those cost cuts. Job done or so they thought.

However they reckoned without a robust government response to their shameless bullying of suppliers. Cabinet Office Minister Francis Maude intervened and the public services provider were forced to issue an unreserved apology. To cap it all the share price tanked as a result. No less than they deserved you might think and you would be right. Definitely something to cheer people up on a Monday morning.

But there is a serious side to all of this. To a certain extent big corporate Britain has been let off lightly so far. Profits are recovering, due to cost cutting it has to be said, rather than imaginative revenue growth. Balance sheets which weren’t that stretched anyway are being strengthened by a hungry bond market providing cheap money. As a result executive pay packets are soaring.

Yet, as the Serco episode above shows, they are still squeezing their suppliers, not only in terms of asking for retrospective “rebates”, but also extending payment terms by up to 90 days. This takes its toll on already cash strapped SME businesses, and is doing as much damage to their chances of survival as the current lack of available finance.

As Part Time FDs we see this frequently when working with our SME clients. If these businesses were able to just claw back a month’s worth of working capital, the cash injection into the SME sector would surely be significantly more than the government and banks have been able to manage so far.    

Big corporates more than ever have their part to play in Britain’s recovery, particularly in light of the austerity measures that the government is having to put in place to reduce its debt. A 30 day reduction in the working capital cycle will do more for enterprise Britain that any amounts of Government exhortations on banks to lend. Come on corporate Britain, it is now time for you to do your bit….

Because we’re worth it….

Wayne Rooney negotiates a contract that could earn him in excess of £200,000 a week. FTSE executive pay has increased by 55% in the past year. Eric Pickles berates the local government “gravy train” and is demanding top Public Sector bosses take a pay cut of up to 10%. Throw in the regular comments concerning bankers pay and bonuses and we are once again playing one of Britain’s favourite pastimes, namely a fascination with top people’s pay.

The British have an interesting attitude to high levels of remuneration. We revel in the glamour of high earning superstars and yet frown on anything that smacks of “fat cattery”. This approach tends to glorify celebrities and demonise business people.

The riches that Cheryl Cole, who is moderately attractive and talented, has accumulated do not provoke outrage. The pay and perks of individuals who are responsible for billions of pounds and thousands of jobs seemingly do. And yet it is well run businesses that create the wealth that enables us to indulge these celebrities.

The BA results are a timely reminder of this. Willie Walsh has had to cope with recession, strikes and natural disasters, yet has managed to deliver profits that were double expectations, and negotiate a major merger with Iberia to boot. To do all that has required prodigious talent and deft footwork, which is more than equal to that of Mr Rooney, yet Mr Walsh will be pulling in considerably less than footballer’s salary, and will no doubt get more negative headlines for doing so (Rooney’s negative headlines have been more to do with his negotiating tactics than the final deal).

Maybe it is because people look at the likes of Cole and Rooney and say, yes, with a little more talent and luck that could be me. They can identify with these superstars in way that they cannot with a talented business person.

What does this mean for Enterprise Britain? Entrepreneurs rarely tend to enjoy high salaries. They prefer to make their money on exiting their business, which is arguably a more realistic measure of wealth created. Indeed as the recent IOD report on director pay shows many directors of small and medium sized businesses are sharing their employees’ pain regarding pay freezes and cuts. However they too are tarnished by the anti business feeling that accompanies stories of high executive pay.

Some top executives packages are clearly excessive, unrelated to performance or ability and deserving of criticism. And yet unless we start to really appreciate top business people and stop begrudging them their rewards we are going to struggle to develop the enterprise economy that will provide the jobs and wealth of the future. Particularly those for footballers and pop stars……

Finance fall guys and unsung heroes…

Yet again a finance chief falls on his sword due to accounting errors. Holiday group TUI’s CFO Paul Bowtell has resigned as a result of the revelation that the company had to write off £117m of irreconcilable balances following its merger with First Choice in 2007. The differences, which led to the TUI share price falling 7%, were due to failures in combining the IT systems of the two businesses.

Internal balances are always a problem in large groups. It seems that when dealing with fellow subsidiaries, all good credit control procedures go out the window and internal politics takes over, leaving a trail of unreconciled and unagreed balances that can end up amounting to a sizeable sum of money.

Mind you it is funny how these accounting errors always result in a loss. I don’t recall ever having heard of a CFO being sacked for accounting errors that resulted in a profit even though the system that produced such profits would have been just as faulty as one that produced losses. Maybe they just overlook those sorts of errors (and perhaps the impact on executive bonuses…).

The above of course is a salutary reminder to us FDs how dependent we are on our systems and the people that operate them. Smaller businesses also often get into a mess because their bookkeeper or accounts team does not perform, or does not have sufficient understanding of the business to produce a proper set of numbers.

As an FD you can produce wonderful reports, charts and plans but they are meaningless unless the raw data is accurate and reliable. As I recently said to client, you can have the most sophisticated accounting and reporting system going, but if the input is not controlled, then the figures produced will be worthless. GIGO (Garbage In Garbage Out) in computer speak.

A good reliable accounts team or bookkeeping set up is worth its weight in gold and are the unsung heroes of an effective management reporting and control system. Make sure these people know what they are doing, and more importantly, why they are doing it, and your life as an FD becomes much easier.

Still at least Mr Bowtell did the honourable thing and resigned, as opposed to clinging on and blaming a few underlings. There is a lesson in that for someone somewhere……

Lessons in debt…..

I remember when I got my first credit card. I acquired it when I opened my first bank account as a student. The credit limit was £100, I used it sparingly, and I always paid back the full amount. Of course in those days students received a grant and I was able to deposit mine in a building society account and gain some additional income as the grant balance ran down over the course of a term (those were the days when savers also received a decent rate of interest!).

The upshot of all this was that I was able to emerge debt free from my student days, and save sufficient money to put down a deposit on a flat. A mortgage was therefore my first real experience of debt. However the systems in place at that time regarding multiples of income and percentage of loan to value meant that it was manageable and affordable. I continued to pay back my credit cards on time. Like my parents I believed that debt was to be used sparingly, was only for sensible reasons, and should be comfortably paid back within a reasonable period.  

The reason for the above wave of nostalgia is Lord Browne’s review of higher education funding which was published last week. This raised the prospect of students emerging from higher education with a level of debt that would have been unimaginable to my younger self. On top of this they will probably have an overdraft, credit card borrowings, a car loan and other debts to which they will then be expected to add a mortgage.

The rise of debt fuelled consumption by both individuals and government is blamed by many for the economic struggles that we now face. And yet are we really surprised at this, given that young people are effectively educated to believe that a mountain of debt is a fact of life, and that paying it back is something that will have to wait until resources allow?

There is no easy answer to this. Higher education has reached the stage where it is impossible to fund it without student contribution. Too many students and too many courses are spreading resources far too thinly. And yet I can’t help thinking burdening young people with this level of debt is sending out the wrong message, potentially discouraging able students, and thus storing up even more problems for the future.

Dip and Double-Dip

Drat and double drat as Dick Dastardly used to say. Or should that be dip and double-dip. A Deloitte survey has just revealed that confidence has reached an 18 month low among CFOs in the City, and that more than a third of those questioned believed that the UK was heading for a double-dip recession.

Finance chiefs are not paid to be cheerful (well not until they become CEOs and are magically transformed into over optimistic flag waving cheerleaders for their businesses) so for them to be so pessimistic is clearly par for the course. But there is at best an eerie silence surrounding the economy at the moment as UK plc waits with bated breath for the comprehensive spending review to unveil its conclusions on October 20^th.

There is even a sense within the coalition government that maybe they have managed expectations too well, and Whitehall is now echoing to the sound of ministers furiously back peddling and letting it be known that these cuts may not be as bad as feared, or maybe scaled back if the economy starts tanking again.

Then you have Philip Green saying that the Government is rubbish at buying stuff and could save billions just by better procurement. Great stuff, until you realise that Government buys from the private sector and these "efficiency gains" are actually cuts by another name.

We all recognise that the public sector is living beyond its means, and that spending has to be reined back now to avoid more serious austerity in the future. However the necessary initiatives to help smaller businesses take up the slack are conspicuous by their absence. 

Economies feed off of confidence, and this is a commodity that is in very short supply at the moment. It is particularly frustrating as many businesses are having a good year, and in normal circumstance would probably be planning for further growth. Now all I hear is “well let’s just wait and see how the cuts affect us.”

For what it is worth, most of the evidence I have come across so far is pointing to the fact that we will probably avoid a double dip. However there is a danger that it probably won’t seem like it, which to my mind is the worst of all worlds.

Capitalism really is nice – trust me…

I have been reading a number of political and spy thrillers recently which has coincided nicely with the return of Spooks to our screens. The key element of this form of entertainment is that nobody is as they seem, everybody is out to do the dirty on you, and therefore you can’t trust anybody.

Given all that, it never ceases to amaze me how important trust in business actually is, and, more importantly, how much we take it for granted. For instance granting credit to a customer involves a tremendous amount of trust, and yet it is probably the key component of a functioning business system. Without this trust many of us just would not be able to do business.

Yes of course we all put in place legal contracts and agreements, and operate using standard terms and conditions, but even with these there is still a belief that we in the main are all nice fair people dealing with other nice fair people.

That is why on the odd occasion that you do deal with somebody who shows no trust and is frankly not nice, there is actually a sense of righteous indignation. The fact that this person is acting in their best interests in accordance with whatever agreement you have put in place does not  detract from the feeling that they are not playing fair.

This is why I do get very frustrated when politicians stand up and criticize what they term the excesses of capitalism for all the ills in the world today. I think there is just as much reason to criticize the excesses of politics which have surely played their part in the economic and other problems of the last few years and much more besides.

I remember a sign at one of the anti-capitalism marches a few years ago which proclaimed “Let’s get rid of capitalism and replace it with something much nicer”. I am not sure that any of the other systems that have been tried so far have been much nicer in practice. Vince Cable may still be able to get cheap headlines by lambasting it but capitalism in the main is really quite nice. Trust me. No really trust me…..