Writer’s block…

OK it has finally happened to me. The deadline is fast approaching. I’m stuck! What the hell am I going to write about this week?

Quick, check the news to see what might affect small businesses, the driver of Britain’s, indeed the world's future growth according to the Prime Minister. Oh and my client base. Uprisings in the Middle East? Hmm. Good for them. Maybe. Clearly not good for oil and food prices, which will stoke inflation even more, which may put pressure on wages, which will cause interest rates to rise, which will deflate house prices, which will probably cause a dive in confidence and double dip recession…..

No don’t go there. Too depressing. Let’s be optimistic. That’s what is going to get us out of this mess. Too many people are talking the economy down. The uprisings will probably sort themselves out and oil prices will fall back. Life will pretty much go on as before. Well for those of us in Britain maybe. Possibly not for those people living in Egypt. Or Bahrain. Or Libya. Or……..

Maybe I can write about some Client activity? (Please note. Capital letter for Client. Very Important People) For many of my Clients it is budget time. That means updating business plans and strategies in the light of current economic conditions. An opportunity to look at strengths, weaknesses, opportunities and threats. A chance to dream about what might be possible, and then turn it into something that is. 

Can we still grow in the current market? Come on, we’ve only got 5% or so of the market. If we can grab another 1% that’s 20% growth. Surely if we know our market and clients, and do the right things properly we can achieve that, regardless of what is happening in the Middle East. Or elsewhere for that matter. Reason to be cheerful – part one.

(Perhaps we might feel confident enough to take somebody on. Perhaps one of those thousands of public sector employees that will become available in the coming months. Although if we do we will clearly be in the minority …)

How about some of the people I have read about or listened to recently. People like entrepreneur Victoria Wills who had a dream, pursued it, made it happen and lived to tell the tale in an amusing and witty fashion. It is hard not to be inspired when hearing her story.

Finding time to attend such events is one of the major benefits of being a freelancer. Sadly too many employed people never get the opportunity to do so even though the benefits in terms of inspiration and confidence to go out and just do it could be immense.

But back to the point. How am I going to get through this writer’s block? Where am I going to get my 450 words from……?

Keep your enemies closer…..

Martin is a banker. And yet I like him very much. In a world where cabinet ministers indulge in cheap jokes designed to inflame anti-banker feelings, this probably comes across as a bold, even brave statement. But one I think that has to be made if we are to get back to a more normal level of bank finance for small and medium sized businesses.

Of course Martin is not one of those megabucks merchant bankers whose bonuses  set the world (or at least Robert Peston) frothing with righteous indignation. He is an ordinary bank manager doing his best to do his job which is to provide finance and services to businesses at an acceptable profit. He and I spoke recently about how he believed that business can work with their relationship managers to improve their chances of getting the finance they need to develop their businesses.

Having a strong, honest and positive relationship with your bank he maintains is crucial.  Relationship managers should be seen as trusted advisors who can become advocates for your business. They should be able to give you an honest assessment of what the bank is looking for, what risks it will perceive in your business and what tools the credit team use to decide whether to provide finance or not. They will explain what risk weighted assets are and why they matter, why structured finance is almost certainly the way forward and why cash forecasts are much more important than profit forecasts. By working with them in this way, you will put them in the best possible position to argue your case within the bank.

I can hear the catcalls already. Yes he would say that wouldn’t he. In the end the banks won’t lend whatever you do. The terms and conditions will be too strict. It is easy to be cynical but surely it makes sense to at least understand the rules of the game and give yourself the best chance of being successful, doesn’t it?

Banking is a simple business really. You lend money to a business that then pays it back with interest. And Martin would be the first to point out that this simplicity was something that banks clearly forgot about during the almost surreal atmosphere of the mid-noughties, where boom and bust had been abolished, and a brave new world of gravity defying economic paradigms was being heralded. Banks are still feeling their way post Lehman Brothers, and to me it makes sense to work with them to get them back on course. 

OK maybe love your banker is still a step too far for some people. But even if you still want to see them as your enemy the old maxim of keeping them closer still applies. As Martin says when the customer, finance director or accountant and bank work closely and effectively together, it can be a formidable force. If “we are all in this together” has a hollow ring about it nowadays, then think of it as getting out of it together. It is likely to be the only way……

The future is bright, the future is risky…..

Last week’s media was full of a survey that 20% of the working population fear for their jobs. This was naturally presented as a problem and another probable sign of imminent double dip recession.

Actually I want to turn this around. 80% of people in jobs obviously feel secure then. They believe that they are likely to remain in employment. In how many other countries of the world does this percentage of the working population have the luxury of knowing where their next paycheck is coming from? As you can see statistics can be used to make any point you want.

Naturally the figures above only tell part of the story. A number of people in employment obviously do feel insecure. However there is another group of people who know what insecure really means – people who are self-employed and/or running their own business. These have increased rapidly in number over the past few years as traditional employment routes become harder for many to follow.

A pattern is emerging. Things are changing. The old rules don’t apply anymore. Risk is becoming an increasing factor in people’s lives, even those who don’t seek it. This a complete reversal of the post war political and economic consensus (as I look at it that looks such an outdated term – for those that are not sure which war I mean it is the second world war). Uncertainty is back.

I can personally identify with this. Having gone down the freelance route I know that there is a big mental adjustment to make once that monthly salary no longer hits the bank account with metronomic regularity.   You have good times. You have not so good times. You deal with it and manage it. You learn to be flexible and organise your life and finances accordingly. Same as if you run your own business.

Young people are certainly learning this lesson. Get a degree and get a good job? End up with a large debt and no job at all more like. Job security? What’s that? Pensions? Don’t make me laugh. More and more of them are rejecting the secure employment lifestyle (assuming that they can find it) that their parents aspired to. They know that in order to survive in the future a new attitude is required. 

Post war British government has been based around de-risking life by introducing a wealth of social and employment protections. However life isn’t like that anymore. Risk is something that has to be recognised, embraced even, and managed. The next generation is starting to learn and adapt to this. And this ultimately has to be good for Enterprise Britain.

Rounding up….

Like most bloggers most of my content is driven from what is happening around me, particularly from news items that catch my eye. Occasionally, like London buses no doubt used to do, a number of stories all come at once, so this week I thought I would do a little of what we accountants like to call “rounding up” and highlight a few in one hit.       

All aboard…

Apparently train passenger numbers are at their highest level for 90 years. OK I guess that is not news to those of you who cram into choc full trains every day. But it is nice to know that there are businesses out there that can treat their customers badly, charge them the earth for it, and still be successful. Of course government cuts (remember everything is the fault of government cuts at the moment) mean that 2^nd class is likely to become even more overcrowded, as civil servants are forced to slum down from first. It’s enough to make you use your car again if only you could afford the petrol.…..

A nation of shoplifters…

Meanwhile more than a quarter of the shoplifters arrested in Japan last year were over 65. According to the police pensioner crime is at an all-time high. It couldn’t possibly happen here of course. Or could it? A recent article by Ruth Sunderland has once again highlighted the pensions crises that has yet to really bite. Maybe in years to come Chief Constables all over the UK will be calling on the public to support them in their fight against the grey crime epidemic. Future Napoleons (or more correctly Adam Smiths) will need to revise their opinion of the British.....

Little Brown Envelopes…..

Amid the claims that a bonfire of red tape is imminent, a new regulatory headache is about to hit Enterprise Britain in the guise of The Bribery Act 2010. Inevitably the legal profession is rushing to point out the problems that this legislation could create, warning that even businesses that procure tickets to exclusive events and ply guests with fine food and drink could be at risk. Oh well at least I won’t have to fret about why nobody invites me to Wimbledon any more ......

A cure for your bad news phobia…..

And finally did you know that Anatidaephobia is the irrational fear that you are being watched by a duck? Now that you do you can impart that piece of useful knowledge to all of your friends and contacts to take their minds off of the wealth of gloomy economic news that seems to be everywhere at the moment. Well we are here to help you honest….

Inflated influence….

I had my annual rail fare shock recently when I took my first trip into central London of the year. As I no longer require a season ticket, I am at the mercy of the various peak and off peak fares that my local operator charges. Once again the fare increase was noticeable and comfortably above what is laughingly known as the headline inflation rate.

Inflation is certainly back in various guises. There is currently the CPI rate that is almost twice the level  which the Bank of England is meant to target. Petrol, utility and transport costs seem to have a life of their own. Global commodity prices are soaring. China is no longer the cheap production centre it used to be. And to cap it all VAT has just gone up.

With incomes stagnating for many people we should probably be feeling a lot poorer. Indeed the Governor of the Bank of England seems to think that this is a good thing. Hence the renewed fears of a double dip recession following the release of this week’s GDP figures which showed an apparently surprising decline in the last quarter of last year.

Back in the seventies, prices went up 20% and so did wages. It was an unwritten law of the UK economy at that time. Nowadays prices are going up and wages are not, a reversal of the so called new economic paradigm of the previous decade. 

Some price increases are obvious and immediate such a train fares and petrol. Some are not. Many retailers have not passed the increase on as yet, probably because they snuck most of their increases in before Christmas and then have disguised the rest by imaginatively spreading them across their product portfolio and using promotions to disguise overall increases.

So are things really that bad? And what should clever businesses be doing about it regardless? Managing during this “phoney war” period of inflation is challenging, particularly as we now live in a flexible global economy where there are a myriad of influences affecting prices and wages.

However switched on businesses can look closely at all their costs and all their products. They should be able work out where they can increase prices, do deals with suppliers and keep their key staff happy. At times like this businesses really do need a good understanding of their finances so that they can model and manage their income and costs.

Of course the real threat to the economy remains interest rate increases. Price increases can be managed to a certain degree. I suspect higher interest rates will be much harder to do so.  

Less regulation = more tax? Discuss…..

Apparently small businesses want to pay more tax. Well 57% of them would be prepared to pay more tax if there was less regulation. That is the eye opening conclusion of a recent survey conducted by the Forum of Private Business.

Actually that was the headline that accompanied the survey. What also came across clearly was the feeling that the tax system is favouring large businesses at the expense of smaller ones. Small businesses believe that large businesses are more able to exploit tax loopholes, thus avoiding taxes that smaller businesses cannot, which gives them an unfair competitive advantage.

Of course tax avoidance is not illegal. Most of us indulge in it through savings schemes such as ISAs or pensions. Put simply tax avoidance is organising one’s affairs to take advantage of tax legislation as it currently stands in order to minimise the tax that has to be paid.

However there is a feeling that certain tax avoidance (or should we call it minimisation) as practised by many large businesses is unfair. Indeed we have seen a number of recent demonstrations against corporations that are believed to be unfairly avoiding tax.

I can sympathise with this view to a certain extent, particularly as certain tax minimisation strategies come across as being aggressive or cynical. But much of blame for this falls squarely on the shoulders of the authorities. Poor or complicated tax law provides loopholes, which are then blocked by new laws, which then provoke new loopholes, leading to a spiral of complexity out of all proportion to the problem being addressed.      

Inevitably the burden of this complexity falls disproportionately on smaller businesses, hence the calls for simplicity. This has led to the formation of the Office of Tax Simplification, which is tasked with providing independent advice on simplifying the UK tax system.  

Obviously the problem with tax neutral simplification is that it will create winners and losers and as we all know the losers shout loud and long while the winners keep quiet and count the money.

However less regulation can and should ultimately mean less tax for all. A simplified tax code that clearly states what is and what is not allowed would make compliance much easier. This in turn would allow a slimmed down HMRC to focus on cracking down on evasion rather than wasting everybody’s time on routine compliance work, thus potentially increasing the overall tax take. A definite win-win scenario in my book.

I suppose to misquote a popular saying if an idea is to too simple to be true, than it probably is. Maybe I am being naïve about the whole simplification issue. What does everybody else out there think?

We get what we pay for…and if we don’t…

Churches account for a significant amount of this country’s built heritage. Many towns and villages see their church buildings as major landmarks and something without which local life would not be the same. And yet a fraction of the public money available to preserve our heritage goes on maintaining churches.

Churches are very expensive things to maintain, especially as many of them are listed. Many parishes simply do not have enough money to keep them up. The Church of England equally does not have the central resources to do so. As yet people expect the churches to be there almost as a birthright.

It is probably sacrilegious to say so but the current trials and tribulations at HMV strike me and many others in much the same way. Record shops used to be religious communities in their own right. Indeed when I was a teenager, visiting HMV in Oxford Street was almost like a pilgrimage. It was a place where I could look out the more obscure records that my local WH Smith would not stock. Hours could be spent browsing the racks of vinyl records before emerging into the afternoon sunlight which a number of new acquisitions that I could not wait to get home and listen to (OK it was a pain to take them back if they were scratched but we won’t dwell on that).

Up until a few years ago I did spend significant sums of money in HMV but like a number of people I now buy or download online. The reason – it is just so much cheaper (oh and HMV no longer seems to stock vinyl). It is still fun to browse there but clearly not enough such that I am prepared to pay for it.

I guess much of this mirrors what is happening in high streets up and down the land especially since the demise of Woolworths. Indeed years and years ago there used to be a couple of record shops in my local high street. Of course they disappeared when people started buying discounted records at WH Smith or Virgin Megastores (remember them?) or HMV.  

People want their churches to stay as churches but would not dream of worshipping in them. Shoppers bemoan the demise of the high street and their local shops as they scurry into Tesco for their weekly shop. I will continue to download music or buy it from Amazon while regretting the disappearance of local record shops. We get what we pay for – and if we are not prepared to pay for it then perhaps we should not be surprised if it no longer exists.