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To sustain or grow business, owners need to continually invest; However, 2013 has maintained a vein of general turbulence for business… with a finale to the year (unless something else turns up before Big Ben’s midnight striking in the New Year….) on the heels of the Co-Op’s disgraced former Chairman’s scandal,  culminating in RBS being accused of deliberately wrecking viable small businesses to make profit.

My concern has always been for those businesses that were indulged by their banks, like spoilt children at a party; overeating and over-excited to the point of bursting. Then, needing support, (often feeling sick) they’d return to the bank for assistance – Only to find themselves overlooked and thrown out of the ‘house’. Good viable businesses and so-called zombie business equally hit – Any who have spoken with me over the last decade will know that the RBS story is very old news.  And now, earlier than the 2018 target, the Bank of England has been asked to review its powers over the banks’ balance sheets – the Leverage Ratio – to rein in risk-taking banks.

With access to finance via traditional bank funding still having barriers, businesses have done well to keep their heads above water. So will the 2014 opening of The British Business Bank  offer some innovation as an institution? Or will dependence on its infrastructure Velcro it to the various other Government initiatives which have had little impact in their contribution to accessing working capital or asset purchase?

2014 will be interesting to watch as a juncture to continued ‘extreme’ risk aversion.   The Banking Reform Bill  (in the House of Lords) with its measurements to ‘improve’ bank governance is to come into effect.  One element proposed to enter the Bill is the criminal offence of ‘reckless misconduct in the management of a bank’ (should a senior banker’s behaviour fall below that which could be ‘reasonably expected’).  That could be an interesting one – We all run our businesses in the belief that we’re doing the right thing at the time (to run our businesses) and, banks being businesses will probably counter the same argument. Which, considering the few spot-the-differences in the 5+ years since the financial carnage, there’s probably plenty of time  for those at high levels to haul this one around before  any movement is seen in the management culture of those lofty level bankers.

Analysis Paralysis 2014?

Image and Article credit: Copyright SUF © 2013

 

With the reality of business economics being under increased pressures, the debate on the sustainability of small businesses will continue.

There is no silver bullet for businesses with models at tipping points; competition and alternative channels, profit margins and budgetscash-flow  and supply chains, each have an impact on the demand. Customers want convenience and efficiency all wrapped up in value with an added smiley face.

But there is no doubt, not adapting to all those demands will only place a business in jeopardy to altered trading conditions.

Small companies that have become reliant on systems (including their banks) believing that their business is safe are, in general, unrealistic. By optimising opportunity and developing strategy  businesses assist themselves in being complicit in managing business.

Implementing change for improvement creates transformation and can build the necessary confidence for business decision making when there is any uncertainty.

Image credit: Jan   Article credit: Copyright © SUF 2013

I wonder how many will choke on their coffee when they hear of  the brilliant idea that Banksy recently set up?

A market stall  in New York, part of his contribution illustrating Art without a price tag, filled with original work at $60 a pop….. and few takers. Marvellous.

Collectors for profit, missing-out to those genuinely willing to give it a go, and value the offer on the market stall by enjoying the aesthetics for their true value over perceived value, is a rare thing indeed.

Image credit: pasukaru76  Article credit: Copyright SUF 2013 ©

The pound has risen, there’s optimism amongst the financial industry and sterling is looking strong as record low interest rates are still in place  – Business surveys have recently been consistently positive; retail sales are up, car sales are good, mortgage approvals have increased.

But…..

Most of these figures are set against previously declined figures, therefore it’s not unrealistic for Step-Up Finance to keep hearing the ‘concerned about cash flow’ chorusing from small businesses amongst the commercial finance and funding concerns.

Needing a jumpstart, some of these business have tried finding a solution by turning to bridging finance or loans, while others have used their own reserves or drawn-down from their business.

Some have managed to reduce the stresses and stabilise their situation.  Some have made it worse by not being realistic about the amounts needed, gateways to those amounts, or exits routes from those amounts.  Some measured the amount of finance that can be taken from a business without leaving it worse off. Some missed the main measurement for cash flow and business value.

The sum total is some have cash and will survive, and some haven’t been strategic, and likely won’t.

Image and Article credit: Copyright SUF 2013 ©

Should A Business Borrow Money Because It’s Cheap?

There’s no straight answer….and depends fundamentally on how a business funds its current operations.

Wanting to increase their reward is how the business owner accounts for their decisions, therefore, when it’s running consistent and there’s opportunity to benefit from that consistency by increasing turnover and further growing retentions for the business, when there is an appetite to take opportunity and ‘cheap’ borrowing is available, the ‘cheap’ part of a facility might aid some of the final decision making. And, when business isn’t currently running consistent because one, or several factors, inhibit opportunity, the decision to borrow might also be inspired by ‘cheap’ lending on offer.

The key borrower decision is the same as the lender’s key decision; risk, counter balanced by debt.  And, good quality financial investment from third parties can be thin on the ground at the best of times… even more so at the worst of times.

Bridge

Initial risks that businesses take aren’t always quantifiable in monetary terms and, at such a crucial time for financial support, business owners are  usually found ‘investing’ in their investment because they ‘believe’ in themselves. This crucial time, without a firm foundation of funding, often means businesses owners are taking time with their ‘investment’ but further disabling themselves from taking the time to evaluate and accommodate financial structures, or being restricted in exploring alternative forms of funding without  upsetting  the equilibrium of running the business. In such an example, capitalising on ‘cheap’, capitalising on an investment opportunity, capitalising on maintaining that investment has currently never been as low before.

Without wishing to sound like a stuck record, Lenders re-think their strategy and attitude - Businesses owners need to re-think theirs.

When the banks remove an overdraft and replace it with ‘different terms’, the willingness to lend hasn’t been removed (indeed, its arguably promoted as support) and an ability for the customer to borrow is still there (for those offset as worthwhile ‘risk’ for the new terms) but as the amount of  overdraft facility  might be reduced, the length of ‘tie in’ term increased and the alternative facility and its costs being  more expensive risk for the lender has been counteracted, but what of risk for the borrower?  Should they utilise what’s available from themselves, or use what’s available, it’s ‘cheap’? Borrow from yourself, your business or a third party? Increase or decrease the risk? Take a breathing space with cash flow or keep the cash flow on reduced oxygen?

Should a business borrow money because it’s cheap or should a business be willing to get informed; understand what they have, what they could have, what they’re working with, how it should work, why it isn’t working better, what could work better.  Should a business be an easy target in the business jungle or get some body armour? 

Jungle

 

Image credits: Nathan O’Nions   FabCafe  and SUF.   Article credit: Copyright SUF 2013 ©

 

Phase Two of Help-To-Buy (HTB), in which taxpayers guarantee up to 15% of a new mortgage, means that Applications will now be allowed from early October. However, lenders will not be able to buy guarantees for the mortgages they offer until January 1, 2014.  Lenders will be able to start writing loans but it’s still unclear when they can advertise their deals, how much it will cost them to take up the mortgage guarantee or if they will be 80% mortgages – crucial factors in cost for the borrower.

The UK economy is currently growing at the fastest pace since the financial crisis and is set to be maintained in Q4; Q3 GDP figures are due out in October.

Despite Interest Rates staying the same, thousands of landlords are facing a rise on their Tracker mortgages with the West Bromwich Building Society’s former specialist arm,  West Bromwich Mortgage Company.  The rise in December is similar to that of the Bank of Ireland (BOI) whose customers face a further rate rise in October, from 1.35% (o.5% base, plus 0.85% margin) to 3.99%.

Finally, October will see Royal Mail privatised, with orders for far more than the entire number of shares being offered already made well before  the 8 October deadline. The float (11 October) is being handled by City firms and banks including UBS, Goldman Sachs, Barclays, Merrill Lynch, Investec, Nomura, RBS Europe.

Image and Article credit: Copyright SUF 2013 ©

 

Just like children, businesses need stimulation.

They can’t run themselves or improve themselves but, with the right encouragement, businesses, the same as a child, will respond and with the right type of attention, they’ll produce results.

In the Government report Growing Your Business  - A Guide For Small Firms, Lord Young talking about micro firms’ potential, notes “in the last recession in the early nineties, small firms were in debt for over four years”.   Now, five years since the banking crisis,  a time during which, some small firms have had  ‘money in the bank’  and  ‘large corporates are sitting on over £720 billion’,  confidence in some area sectors of business remains elusive.

A link between unstable or chaotic environments and the effect of disruption is increasingly being explored as an effect on children, and showing as a negative impact. And, there is a necessity for children to have an opportunity to learn through play, say some education ‘experts’;  they shouldn’t start school until ‘age six or seven’,  allowing time before adding, in effect, ‘chaos’ to natural development.

Chaos breeds uncertainty; it’s consistency that tames chaos and calms things down.

Image credit:   Randy Heinitz   Article credit: Copyright SUF 2013 ©

Business As Normal…

Small firms are on the whole still feeling austerity chomping at their heels from which many are facing heavy additional burdens. Consequently, doing the bare minimum to get the job done means ‘right’ or ‘wrong’ decisions aren’t always considered, and we’re seeing a distinctive two-camp pattern of  those who acknowledge that changes continually happen, therefore they have or are prepared to adapt….. and, those who prefer to put their head in the sand.

Notice any parallels with the endless financial headlines?

For example,  LIBOR (London Interbank Offered Rate), the wholesale market interest rate for lending between lenders (banks), once perceived as a reliable benchmark, was recently subject to claims of manipulation.  Did it  adapt or put its head in the sand?  Whichever, it’s now being forced to look at change.

Base Rate has current ‘forward guidance’  giving that, providing unemployment remains above 7%, interest rates will not go above the four year static 0.5%. When the MPC (Monetary Policy Committee) make their decisions for setting the Base Rate (BoEBR) to meet inflation rate targets, the  objective, based on variables, is to maintain price stability whilst supporting the Chancellor’s objective – In essence  to strike a  balance between keeping inflation down, yet not pushing up interest rates higher than would be healthy for  inflationary pressure. Theoretically, interest rates could stay at the norm 0.5% for the next few years. Dependent on how they are interpreted, dependant on which numbers are used, the shift around could be viewed as ignoring the facts or being ‘forced’ into change.

This Interest rate, for short term money lending by the Bank of England to commercial financial institutions, (who in turn set their own interest rates for their borrowers and savers), was changed between 1997 and 2005 on 30 occasions  -  26 came in the form of quarter-point changes in either direction, and the rest were half-point changes -  from 1971 to 2013, the average rate of interest was 8.19%…. and, with a potential forced change for mortgage lenders, (consequence of EU rulings); which could have mortgage lenders  having to tell borrowers ‘the maximum interest rate they have charged during the past two decades’, this APR could arguably contribute to already confusing information, with both lenders and borrowers wanting to bury their heads as preferable option to advertised loans and their Klingonesque small print : ‘Interest rate of a maximum of a charged during past two decades’.  Arrows2

What could curb all this confusion?  What could possibly give those in business an opening to consider the ramifications of not considering?   ….got me to thinking about the derogatory term: Normal for Norfolk.

For any not familiar with this reference to a county, it’s used when describing an action (or less sensitively an individual) which is seen as so ridiculous it could only have been born as a result of inbreeding; the implication being it’s a stupid action. Scratch away at the letters (distraction technique for mounting paperwork) and it takes only the removal of a few consonants before a couple of useful phrases alight.

The new normal (following 2007-2008) for business could utilise these phrases as clarity from many a powerful body: this is ‘Normal for No Folk’ or this is ‘Normal for Folk’‘They’ (those who issue the statements) should be able to see clearly each time, by the response they get, that we (those the statements apply to) understand what it is we’re being told.  The phrases could help us to understand whether something is a long or short term expectation, or acceptable or unacceptable situation - We’d be able to clarify whether they do or don’t know what they’re doing. They could go about their business realising what they perceive as ‘Normal for Folk’  is anything but normal…. and we could go about ours, understanding ‘Normal for No Folk’ is anything but normal.

Regular

Image credits:  Alden Jewell  FutUndBeidl   Terry Shuck   Article credit: Copyright SUF 2013 ©

 


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