I Might Be Wrong But...

Now up front I feel compelled to remind you that I am but a Managing Director of a small British company. OK a bit of an odd one that actually makes stuff despite all the advice I have received telling me that we are totally nuts and should have outsourced to Mars or somewhere long ago, but all the same just a simple businessman. I am not an economist. I have never read a weighty economic text or sat so much as a GCSE in the subject.

But...

If I don't have the work because I don't have the orders I don't need to hire anyone. So all the £1000 in cash incentives under the sun from Her Majesty's Government won't get me hiring. Since I haven't hired that guy I don't need to train him so the £1500 that I may be able to get for training is equally ephemeral.

If I don't have the work because I don't have the orders I don't raise the invoices so I cannot discount them with the Bank of England Invoice Discounting service, I don't collect the cash so cannot repay a loan that HMG has underwritten. All the banks in the land can offer me Government backed loans but if my demand is tanking it is not going to save me.

If lower VAT is just a different calculation in the way I collect tax for HMRC. It doesn't help me. 

If prices are rising because of the currency devaluation the lower VAT rate has not lowered prices in the markets I trade in and so this has not stimulated demand so I don't have the work because I don't have the orders...

For the moment at least we here at Severn Delta are weathering the storm. Costs are through the roof but thus far demand has held, our bank are supportive, as I outlined in my previous post. 

But... 

I worry about the long term impact of the short term decisions our government have made. 

I worry that the solutions we are presented with are balm for the symptoms that disguise the fact that the underlying infection is spreading. 

I worry that pouring money into a black hole because someone has erected a cardboard facade with the word "Bank" written on it in crayon (so it must be OK, right?) and hoping the hole will fill up is hopelessly optimistic.

Maybe I just worry too much about this complex economic rocket sciencey stuff that maybe I'd understand just a bit if I'd maybe stayed in school just a few years longer. 

Maybe I'm wrong... 

Information Will Be Key In Lending Decisions

Back in the frothy days of September I wrote this post, and mentioned:

...the growing importance of good management systems and information in how banks and investors judge businesses. The better the systems, the better the IT, the better the information: the higher the confidence levels.

I said at the time: "Ignore this at your peril."

Four months on this is pertinent as "Business" gives a "guarded" welcome to the latest Government wheeze to save us all. 

The financial world is now full of charcoal-fingered cautious fellows who may have been happy to roll over credit facilities year after year in the past but now consider your business only as strong as the latest set on monthly management accounts.

If you cannot provide up to date information on a regular basis expect bad news from your next bank meeting.

Loan guarantee or no loan guarantee - if your data is not of good quality, reliable and up to date you are going to struggle. 

Small business are regrettably poor in this area. In my experience too many small businesses still neglect good cash management. 

We encounter examples all the time in our own supply base. Our financial year runs with the calendar year so we are currently tidying up our year end numbers. Yet we have small suppliers who supplied goods or services as far back as early November who have yet to furnish us with an invoice for the goods/service they provided. Of course without an invoice we won't pay, so they wait for their cash. No doubt some have expensive overdraft facilities that are being reigned in. 

In the easy good times lenders were relaxed, as long as the annual accounts looked OK then it was hey have another ginger snap and cup of Earl Grey. No more.  

Confidence is the absent quality right now so good data with coherent explanations of your current trading patterns and outlook for the next quarter will stand you in good stead. 

There is business to be done with our friends the banks. Don't believe all the propaganda. There is money to be lent - money to be borrowed.

For example we successfully secured funding on sensible terms for an acquisition we were looking quite seriously at towards the end of last year. We opened the discussion at the height of the bank rescue storm. We were taken seriously and received the backing we needed to proceed in making an offer.

In the end we didn't succeed with our bid, but that was more to do with the price that we were prepared to pay not the amount the bank was prepared to lend. The latter being greater than the former.

But I am under no illusions, without the detailed up to date management information we provided to support our proposal it would have been rejected.