Whenever it rains the banks want their umbrellas back

 

Despite previous rhetoric it is now apparent that some banks are still trying to increase their reserves, rather than lend more money out.

 

New figures from the banks themselves confirm that lending to businesses is continuing to fall.

 

Lending from the UK Government Enterprise Finance Guarantee scheme has dropped to record £66 million low in the first quarter of 2013. The EFG scheme was introduced in 2009 to assist SMEs to obtain loans.

 

As the Banks continue to labour under the weight of their previous errors the knock on effects are percolating down through the economy.

 

Prior to the credit crunch it was not uncommon for companies to use loans or overdrafts to settle VAT and tax bills but these companies are finding it hard to do so in the present climate.

 

With both new and additional funding hard to access – now is the time to take a long hard look at your Company’s financial situation.

 

Any approach to your Bankers could be very uncomfortable in the current climate so it is necessary to demonstrate you have full control of your exposure. Make sure that the Debtors book makes for healthy reading and that inventory control and stock turn are being monitored very closely.

 

Ironically it is the activities of Banks themselves who precipitated the ongoing crisis but that will not prevent them from playing hard ball with anyone trying to seek support for additional funding in the current climate.

 

Action this day

When a problem comes home to roost it prompts a round of head scratching
and the standard response “why did that go wrong?”

 

The answer is all too often glaringly obvious and boils down to companies failing to address problem issues early enough to avoid the oncoming crisis.

 

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

 

Instead of grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding campaign or the launch of another product range destined to fail for the above reasons.

 

The operating style of many doomed companies can be likened to Nero’s pastime of fiddling whilst Rome burns.

 

Time to gain control

It is incomprehensible that even in these difficult economic times many companies continue to adopt a relaxed approach towards their financial controls.

 

These companies fail to recognise the need for strict discipline in areas of Stock turn and control but what is even more disturbing in the reaction to the Debtors book.

 

As more and more Customers seek actively to delay payment to Suppliers this element of business policing is even more critical.

 

When a Customer exceeds the agreed payment terms, they are in reality using the Supplier as an alternate (unsecured overdraft).

 

This is a situation that can easily spiral out of control so that in a worst case scenario the Supplier is forced to keep “supporting” the errant Customer for fear of realising a bad debt.

 

Think of the parallel to the EU restructuring of sovereign debt Ireland, Greece, Portugal to name a few, it is a slippery path.

 

Take a long hard look at your accounts receivable – are you happy to see 30 days drift into 60 and beyond? Have you considered the damage that is being done to your company’s financial position?

 

It may well be that you conclude that an overall appraisal of your business is overdue -this is where I can help.

 

Why not get in touch with me at gordon.blackburn1@btinternet.com and I’ll help you re-establish control.

 

The hidden cost of cheap food

In a market where prices are squeezed to the absolute and in order to protect margins suspect practices and questionable ethics will inevitably come to the fore.

 

Recently the CEO of the Iceland Frozen Food chain cited the purchasing policies of local councils blaming them for driving down food quality with cheap food contracts for schools and hospitals.

 

Independent butchers (an endangered species in themselves) are trying to make capital by citing their credentials as reliable suppliers who have complete traceability of their product.

 

However the collapse in the number of independent retailers in face of the competition from the all powerful supermarkets means that this is likely to be a last hurrah rather than a return to the golden age of the British High Street.

 

In the UK overall household spending has failed to increase over the past 12 months.

 

This illustrates that higher inflation (currently 2.9%) and slow wage growth are squeezing household incomes and that is being felt in the UK's shops.

 

The current economic reality will continue to underpin the demand for cheap food but in satisfying this demand as was evidenced in the recent horse meat scandal there will be accompanying risks.

 

Chill wind blowing from the East- German exporters catch cold

Speaking in Washington, Lou Jiwei China's finance minister has hinted that the country’s economic growth may fall below 7% in 2013, but said that even this may not be the "bottom line".

That figure is below Beijing's official 7.5% target, and below most economists' forecasts for the country.

Mr Lou's comments highlight how rapidly the country is slowing down, as Beijing seeks to rein in a construction boom.

He also caused some confusion by implying that 7% was now the government's target, even though the target was set at 7.5% in March.

The government is particularly concerned about "wealth management products" (WMPs) - high-yielding investments sold to citizens with spare cash.

WMPs have been increasingly churned out by the banks - particularly the smaller banks.

The authorities fear that they are being used as a sneaky way to raise extra money to pour into the property market and other speculative activities.

However, WMPs also play a vital role in financing small privately-owned businesses, including China's dynamic small-scale exporters.

The German car industry is already feeling the impact of weaker export demand from China with Opel closing one of its factories next year. In China there are already reports of cash starved motor dealers refusing to deliver cars to car lots without upfront cash payments.

Any additional stuttering from the engine key to global recovery would have damaging impact on US and EU economies.

 

 

To the heart of the matter

 

One of the tests of the English legal system is “what would the man on the Clapham omnibus think?”- basically this is the reaction to any problem or situation that could be expected from a reasonably educated and intelligent but non-specialist person.


In the current economic climate many companies would do well to ask “what does the man standing in the queue at the Clapham Supermarket checkout think?”


The problem is (as we see all too regularly) many people running businesses (or for that matter senior politicians) are too removed from the realities of life to effectively understand the economic difficulties faced by the ordinary consumer.


It is a very easy exercise, a few minutes spent in the supermarket or on a garage forecourt will give a true insight into the problems and frustrations currently felt by the ordinary consumer.

If the squeeze on household incomes continues, Britain could be left in a fragile position, with even moderate additional increases in interest rates leading to a major surge in families with dangerous debt levels - especially among worse-off households.

Since 2007 the number of households spending at least 50% of their income on repayments has dropped by 270,000 to 600,000 because of falling interest rates.

But a rise in interest rates in the next four years could see Britain return to higher levels of household debt than before the financial crisis, which was sparked by US homeowners being unable to service their mortgage debt.

Until such times as the man in the street starts to regain some confidence there is little chance of economic recovery having a sustained momentum.

 

 

Playing the long game

 

The impact of the French Revolution? - “too early to say.”This was the response from Zhou Enlai  to questions in the early 1970s about the popular revolt in France almost two centuries earlier – buttress China’s reputation as a far-thinking, patient civilization.

 

The former premier’s answer has become a frequently deployed cliché, used as evidence of the sage Chinese ability to think long-term – in contrast to impatient westerners.

 

Fast forward to today and the ability of the Chinese to play the long-game has never been in more evidence.

 

In a single decade from 2001 up to 2010 Chinese trade with the rest of the world increased from £325 billion to £1.9 trillion.

 

Since 2005 China has invested £320 billion across the globe with 75% of this in developing countries.

 

There is an insatiable demand for raw materials to fuel the economic growth in China and commodities such as Oil, Minerals, Precious Metals and Fuel are the prizes for these investments.

 

The ongoing crisis in Western economies has provided ample opportunity for China to assert its economic strength and China has now usurped the US as the largest foreign investor in Germany.

 

Chinese companies are investing in such diverse areas as the French Wine industry or making acquisitions in the US/European Food Industry and this will undoubtedly continue as China accelerates its move into Western markets.

At the same time China has continued to extend its influence in Africa. In the latest development  China has agreed to give Nigeria a $1.1bn (£700m) low-interest loan to build much-needed infrastructure.

The money will help build roads, airport terminals in four cities, and a light-rail line for Nigeria's capital.

China will continue to invest heavily in Africa at it relies on it for oil and other natural resources.