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.

I’ve got an ology…..

Readers of a certain age, may remember BT’s Beattie, a stereotypical jewish mother figure played by that wonderful actress Maureen Lipman, who used to advertise Britain’s biggest phone company in the 80s and 90s. One phrase that she was particularly famous for was when confronted by her grandson’s success in sociology she exclaimed “"an ology! He gets an ology and he says he's failed. You get an ology, you're a scientist!"

I was reminded of this at a recent British Swiss Chamber ofCommerce lunch where the speaker, Dr Patrick Dixon of Global Change, was described as a futurologist. That’s the job for me. I’m not a natural scientist so if ever I was to gain an ology, futurology would be the one I want.

You might think that futurology is a somewhat suspect science, and if it was all that much, then its practitioners would be rich beyond their wildest dreams as they cleaned up on lotteries and betting coups.However the use of information to understand how the future might shape itself is common practise and essential for any organisation that wants to grow and develop.

Patrick himself uses a strapline of “take hold of your future”. He was particularly convincing on the need for individuals and businesses to embrace green technology. Indeed natural developments in mainstream technology are already contributing to more sustainable world.

As I have mentioned before, whether you believe in the science of climate change or not, the business case for adopting green policies is still very strong. Patrick’s persuasive arguments and case studies only reinforced this view.  

Actually I spend a lot of time predicting the future for clients. It goes by various names such as budgeting, forecasting and business planning, but ultimately it is financial crystal ball gazing of sorts.

Like any good futurologist, I look at past behaviour and future trends. I take into account external political, economic, social and technological influences. I consider internal factors such as strengths, weaknesses, opportunities and threats. I then construct financial models which hopefully provide a route map to the financial future that my clients want.

Accountants are often accused of being backward looking. Good finance directors need to be able to break this habit and apply their financial skills to paint a picture of the future. Ok it may not be quite what I envisaged but all in all I think I too can now proudly claim to have an ology….

You make your own news….

Inflation down. Unemployment down. There you go, this week there has been some good economic news. Last week it was probably bad. To be honest I can’t remember. And as for the week before…..

But then again does it matter? We live in a media age where 24 hour news outlets are desperate for a story. Online, TV, radio, hard copy, everywhere you look. Any snippet of news will be magnified and analysed to the nth degree. Bad news is inevitably given a higher priority than good news. Everything, however trivial, is important for at least a few minutes.  

I am often asked when preparing strategic plans how macroeconomic events should be taken into account. For example should GDP growth forecasts be factored into the numbers? How should inflation or unemployment predictions be accounted for? What should be made of interest or exchange rate trends?  

My answer is always be aware of them and consider them but don’t let them rule your plan. They should form part of your PEST (Political, Economic, Social, Technological) analysis certainly. But when I am dealing with an SME I tend to get them to focus on their SWOT (Strengths, Weaknesses, Opportunities, Threats).I want them to think about what they can influence not about what they can’t.

Because smaller businesses have small market shares there are always opportunities to grow and be successful. It is about knowing your market and using your strengths to develop the right products and services to exploit your niche or expertise. Your strategic planning should focus on the resources and steps necessary to achieve this goal.

Alternatively it is about recognising the inevitable. If your offering is not right or your business is badly run no amount of positive economic news or GDP growth will lead to real success. Indeed positive economic news might lead you down a path that the fundamentals of your business are screaming at you not to follow.

External factors do come into play and it would be silly to pretend they don’t. But it is easy to be seduced by a stream of bad news into negative thinking. Many businesses are thriving at the moment. Concentrating on the basics of running a business well and on what you can control will give you your best chance of success and enable you to create your own headline. One you can control. At the end of the day it is up to you write your own news…..

An economic approach to budgeting…

Poor George. After 57 minutes of huffing and puffing  he sat down to a universal – what? I mean, come on, what could the man do given the hand he’s been dealt? Frankly he should have saved himself the effort and just issued a press release. Shorn of all the political rhetoric it would have run to a page and a half and briefly outlined the key changes that were to be made.

Such an approach would obviously leave messers Flanders , Peston  and Robinson at a bit of a loose end (which is no bad thing) but would have better reflected the true impact of the budget statement on everybody – very little.

To be honest virtually all budget statements in recent years have had little or no economic impact. Either their contents had been leaked in advance, or had already been announced the previous year, or anything of real impact had been tucked away in the forests of press releases that were available from the HM Treasury website within seconds of the chancellor sitting down.

It wasn’t like this in the seventies. Then a packed chamber of MPs (there was no television or even radio broadcasting in those far off times) would hang on the chancellor’s every announcement, which were then relayed to a waiting nation by two of the three television channels available at that time (the children’s programmes being shunted to BBC2 for the day) by studio presenters and guests. 

Invariably booze and fags would go up and incisive questioning would extract from typical “working class” families the viewpoint that they expected to be worse off as a result of the budget. Oh well no change there then…..

It isn’t just politicians and pundits. People do like to make big things of budgets. Big corporates especially do, producing reams of paper incorporating three year visions and MBA techniques to produce a sizeable document that is often out of date by the time it is finished.

There are growing arguments that budgets are a tyranny that stifle business. They either prevent people seizing opportunities because they are not in the budget or encourage needless spending as people adopt a use it or lose it approach and spend what their budget says they should spend.

Rigid budgeting cultures can and do have a negative impact on businesses. However every business, whatever its size, needs a good financial plan both as a route map to where they want to go and as a tool for setting goals and targets. A plan that recognises the key profit and cash drivers of the business, and that can be easily and regularly adjusted to model different scenarios and that can quickly reflect changes in the business environment.

It therefore follows that if you do prepare annual budgets, you should adopt an economical approach in that they should be simple, be prepared with the minimum of fuss, be easy to understand and be able to be quickly updated. George, Ed, Vince or whoever please take note. It would save us all an awful lot of time….

Business planning – up in the clouds or down to earth……?

The two major news items of the moment, Nick Clegg’s apparent triumph in the televised election debate and the volcanic cloud that is currently playing havoc with the skies have brought to mind Harold MacMillan’s alleged quote when asked what was most likely to blow a government off course.

The source of the ex Conservative prime minister’s comment “events dear boy, events” has never been properly substantiated, but nonetheless, it is probably haunting his would be successors now, as all their months of meticulous election planning have had to be put to one side, to deal with these two unexpected events.

Many businesses, not least those involved in air travel, are also having to come to terms with the impact of the Icelandic eruption, which threatens to wreak more havoc on the UK economy than the collapse of the Icelandic banking system. Whether it is key employees being stranded, or the disruption of key transport connections, or the impact on customers and suppliers, companies are having to find solutions to the problems that have emerged.

It is moments like this where the merits of business planning tend to be questioned. “How can you plan for this?” is a common jibe, dug up whenever somebody has the temerity to suggest that their organisation might need some sort of business plan. A lot of this stems from the corporate or government approach to planning, which in many organisations means a political exercise designed to promote or preserve the position of senior executives or civil servants.

The reality is that planning is not just about plotting a single course. It is about preparing for the unexpected. It is about creating a culture within which uncertainty can be recognised and dealt with. Above all it is about producing a framework within which quick decisions can be made to deal with a range of scenarios.

Businesses with robust planning processes will have already started to look at the risks and opportunities that the current situation presents. They will be aware of the resources that they have available to manage these, and will be working out how to deploy them to maximum advantage. In short they will be much better prepared and much more able to survive than businesses that don’t have such processes.

As for the politicians…..

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.