Are we emerging from the recession? – my view!
According to the Institute of Chartered Accountants in England and Wales, the UK economy is emerging from recession, after one of their surveys showed that in the third quarter of the year business confidence reached its highest level in the last two years since the world economic crisis started.
Is this reflected in what I am seeing in the outside world in which I mix? Has the economy turned around?
This is what we all would like to know, isnt it? I wish I knew the answer; what I can tell you is that I am seeing some horror stories out there, but at the same time I am seeing some businesses who most would expect to be suffering, but who amazingly are thriving and prospering.
Yesterday I saw some excellent results from a motor dealership, and they are meant to be suffering terribly, arent they?
Today I met a businessman with a good record of profitability and good security, but suffering in the recession, who was offered renewed overdraft facilities at 7% over base instead of 2% over base by the bank.
In my work with our clients in the South East, and also in my visits abroad speaking at management conferences, I never miss the chance to ask about business strategies and I have been accumulating information about priorities that the owners or managers have decided are most relevant or important to that business or group of businesses.
This information is collated into my presentations for my next conference, or shared one on one with the next business client I see.
The main priorities can be summarised into the following areas:-
1. Cash is King
2. Reduce Costs
3. Improve the way you treat your existing customers
4. Increase Sales
5. Management Reporting
6. Leadership
In this brief article, I cannot cover each of the areas, and if anyone wants a PDF copy of my current slides, just email me at mo@obcaccountants.com and put in the subject matter “recession presentation” and I will send you a free copy with my compliments.
So lets look at the first one – Cash is King – obvious … I hear you saying?
Yes maybe, but then why is it I am seeing too many businesses who appear to be burying their heads in the sand and are delaying taking measures to conserve their cash, in the hope that things are now getting better out there?
I am sorry! Do you really trust the bank managers to be there for you, if you cannot show you have made significant changes to the way you are running your business?
I feel genuinely sorry for most (not all) of our bank managers “in the field” who have worked so hard to build rapport with their customers, and understand their businesses, only to have this relationship torn to shreds by the idiots at the top who have mismanaged their business, who are now instructing their managers to go out and reduce lending (at a time when the government has asked them and given them the money to increase lending).
Many have then compounded the problem by offering crazy interest rates between 5% and 10% over base to these customers, who had previously been borrowing at 2% over base. Profiteering? You might say that – I could not possibly comment.
Come on – smell the wind that is blowing out there! Let’s face up to the brutual facts!
This recession for most, if not all, small to medium size enterprises (SMEs), which comprise more than 90% of the businesses in UK, is not going to end until more liquidity is made available to SMEs. The government might have introduced Enterprise Loans to replace the old Small Firms Loan Guarantees, but the banks are issuing these in very small numbers.
The government might have given the banks more money, but this is not finding its way out into the wider economy – at the moment most is staying in the Bank’s coffers.
So we must prepare for the worst, and hope it does not happen. We have to prepare for more business failures, more bad debts and more reduced demand, and hope it does not happen.
Pessimistic? – Not really …. Realistic – Definitely! Planning is the key to survival.
Your future lies in your hands – and nobody else’s!
Reduce your stocks and work in progress, reduce your debtors, postpone capital expenditure etc etc (and lots more) to create/conserve/increase your cash reserves. You cannot afford to assume that the cash will be available from others.
Wage increases are history for a while – replace them with productivity bonuses! Stop rewarding people for taking time off sick – you never pay more to the team members who are never sick.
Now is the time, if you have not done so already, to get rid of those team members who consistently take time off “ill”, get in late, who are always moaning etc etc – they are a hidden but massive cost to your business.
Controversial? Possibly, but I have seen too many good profitable businesses fail, because events overtook them quicker than they anticipated, and they ran out of cash and the banks were not interested in helping them. They were optimists!
We are faced with tough times, so we need to make tough decisions. EVEN if we do start emerging from recession, do not dare to relax your attitude – it will be the difference between success and failure – we have never faced conditions like this before, and we have to think and act differently.
Good luck – I hope to see you at the end of the tunnel – lets hope the light we see is not a train coming our way!