Category Archives: Business Finance

Risk-Averse Culture Amongst the High Street Banks

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At the recent G8 and G20 summits, Barack Obama was preaching caution to a number of European countries (including the UK), about early cutbacks potentially triggering a double-dip recession. Economists at the IMF appear to share his views. Whilst nobody seems to disagree about the need for sweeping cuts in public expenditure, timing is a contentious issue. Mervyn King, the Governor of the Bank of England, openly supports the current UK Government’s plans to make the cutbacks sooner rather than later.
The problem with any economic model is that there are so many variables which can influence the end result and consequently nobody can predict the outcome with any certainty.
Cutting back public spending ultimately translates, to a great extent, in reducing the public wage bill – inevitably resulting in cuts in the number of public employee jobs, wage levels and a resultant reduction in services. Also the private sector will be affected both through the loss of government contracts and from the knock-on impact of lower public spending.
A potentially bigger, unknown impact can be that on consumer and business confidence.
No government wants higher unemployment and it has been reported that the Treasury is assuming that growth in the private sector will create 2.5m jobs in the next five years to compensate for the jobs lost as a result of the spending squeeze.
If this is a realistic assumption, then the government must address the “credit crunch” – the desperate shortage in the availability of credit for cash-starved businesses. Businesses will not be able to expand and create jobs without sufficient cash flow – the vital, life-force of any business. Ironically, the demand for consumer credit traditionally tends to drop during economic uncertainty as a consequence of lack of confidence about job security.
It was because of the general failure, at a very high level of bank management, to follow the basic canons of lending that the banking industry failed the global economy. But the pendulum has swung too far the other way and there is now an overwhelming risk-averse culture amongst the High Street banks. Despite publicly claiming otherwise, the banks are still only supporting the strongest of businesses.
It is in the nature of banking to assess and to take risks and to then monitor and manage lending portfolios. This doesn’t mean throwing caution to the wind and “pawn broking” – ie lending against the value of security (particularly against falsely inflated valuations of property). No it means, irrespective of the size of the borrower, accurately assessing the terms, risk and ability to service any borrowing and, only as a backstop, considering the value of any security taken.
The global economy is fragile. It is imperative that those left in control of our destiny take steps to ensure that the banking industry has the funds, and then responsibly makes them available to businesses which are looking to expand and provide employment and rebuild our economy.

If your business is struggling, speak to an expert from Wilson Field’s free advice line on 0800 458 3320 or visit their website at www.wilsonfield.co.uk.

When the Bank Says “No”

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David Cameron was quoted recently as saying “The country has got an overdraft. The interest on that overdraft is swallowing up things that the nation should otherwise be spending money on”. He went on to warn of tough times ahead and said “We need to address the areas where we have been living beyond our means.”

There must be numerous business owners who can relate to that situation. Few people have not, at some time, had to “tighten their belts”.
The UK has simply increased its borrowing (public debt) to fund spending and prop-up the ailing banking system. It has still managed to hang on to its AAA credit rating despite its huge budget deficit.
But of course, if you are running a business and have experienced problems as a result of the economic downturn (and few have not) then there is every likelihood that your bank will be far more reluctant to lend. The ability to simply “increase your overdraft”, as the UK has, often simply isn’t an available option. So, what do you do if your business is short of cash flow – perhaps as a result of suffering a bad debt or sales have dropped off leaving you with excess capacity? There may be alternative forms of finance which would address the cash shortage, for example factoring book debts, but that isn’t suited to all situations.
Another alternative may be to try to attract private investors but if your company’s balance sheet is weak or overburdened with historical debt they are likely to be reluctant to pump money into what they think may be a lost cause.
Of course, you could simply give up and “throw in the towel” but that has to be a last resort after the amount of effort involved in building up a business to start with.
Many entrepreneurs, from small enterprises to large plcs, are looking to insolvency procedures to buy time or help them to restructure. One major problem, however, is that most business owners (and many advisers) have a limited knowledge of what is available and exactly how it could work for them.
If you are running a business and would like an informal, no-obligation chat about your business telephone Freephone now on 0800 458 3320 and ask for Phil or visit our website at www.wilsonfield.co.uk

Brace Yourselves for a Rough Ride Out of Recession

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Nobody is under any illusions about the tough times ahead. National Debt is at record levels and has increased sharply since 2008 mainly as a result of recession ( – lower tax receipts, higher spending on unemployment benefits) and the financial bailout of Northern Rock, RBS and other banks.
Whilst there may be some disagreement about timing, politicians from all sides agree that drastic cuts in public expenditure are inevitable to reduce public borrowing. Experts, as usual, have different opinions. As recently as February the International Monetary Fund gave strong backing to the Labour government’s “wait-and-see” approach to cutting Britain’s budget deficit, warning that the weakness of growth required tax increases and spending cuts to be delayed until next year. Meanwhile, more recently the Governor of the Bank of England, Mervyn King, openly supported the new Government for its plan for an immediate £6 billion cut in public spending. The problem with any economic model is that there are so many variables which can influence the outcome. On the one hand some fear that cutbacks will trigger higher unemployment which in turn will reduce income from taxation and perhaps impact on spending habits and nudge us back into recession. On the other hand the issue of public debt has to be addressed at some point.
Historically, the peak in business insolvencies has occurred after coming out of recession. This is caused by a combination of factors. Many businesses will have had to draw on reserves to survive the downturn. So just when the need for working capital increases to cope with business starting to pick up, reserves are depleted. In normal times companies would turn to the banks for support. However, the banks are still licking their wounds from the recession and are not in great shape themselves. At a time when they are risk-averse, they are not going to look favourably on a company with a weak balance sheet.
So, unless alternative forms of lending (for example invoice finance) or private investors are available to plug the financial gap, businesses potentially face failure.
Fortunately, even at that stage all is not necessarily lost. There are often alternatives means of rescuing a business when all other traditional avenues have been explored, involving insolvency procedures and possible restructuring.
If you are a business owner and are concerned about cash flow or any other financial issues, the worse thing is to delay taking advice – it reduces available options and the chances of survival.
Phone Freephone now on 0800 458 3320 and ask for Phil or visit our website at www.wilsonfield.co.uk

Bank Which Breaks the Cycle Could Help Stimulate Economy

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Banks make profits by lending money at a higher rate than they pay for it – that’s a “no-brainer”. They make money by taking risks, but not the risks which contributed to the current global recession – which could be compared with an ill-advised wager on the two o’clock at Haydock (no disrespect to the horse racing fraternity). No, traditionally, a banker’s skill is assessing what is an acceptable business risk and charging a rate accordingly. That also doesn’t mean taking the current stance of being totally risk averse. Like many businesses, the banks lack confidence – the confidence to back businesses which are not “blue chip”. Reaching a decision to lend is not the end of the story for a banker. Marginal businesses or those experiencing temporary financial problems need closer managing and the banks have the expertise to help business owners and at the same time protect their own investment. They also have tools at their disposal including covenants attached to lending contracts.

Businesses are suffering as a result of a continued dearth of the availability of commercial credit and this will hamper the rate at which the economy recovers. So as we only just struggle out of recession (with a huge journey ahead) at some point one bank – perhaps a new player in the market – will break the cycle. It will take the bold step and be ahead of the rest and start to lend to more marginal businesses. Not sub-prime lending, but lending to the many SMEs which generate most of our GDP and employ the vast majority of our working population.

And the first lender to break that cycle could help stimulate economy. There are numerous directors of decent companies disillusioned with the lack of financial support and are itching to have the opportunity to move banks. Once that first step has been taken market forces will prevail. Others lenders will follow suit when they see their lending books shrink and competitors picking up the goodies.

The economy needs that stimulation and the banks themselves need to return to “business as normal” as soon as possible to improve their own profits and the strength of their balance sheets.

What Do You Do When Your Business Runs Out of Cash?

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What do you do when your business runs out of cash?

In the past the answer was fairly simple – pick up the phone to your bank manager. If he or she couldn’t help there were “secondary lenders” who could often support you – but at a cost.

The banks will still support businesses, but only the strongest and fittest in financial terms and in the current economic climate those are few and far between. And the secondary lenders were largely funded by the banks – their funding has disappeared and they are no longer active in the market place. There are still bridging lenders who will provide high-cost , short-term loans, secured by property but they will expect around 2% per month. That may be an answer if you need to complete a lucrative contract and there is sufficient profit margin to absorb those borrowing costs.

The debtor finance industry is very active and what was once considered to be almost a lender of last resort, but in the current climate they have become “mainstream”. It is not suited to all industries or situations but does fulfil the needs of many companies operating in the business-to-business market who supply goods and services on credit. It is ideal for expanding businesses as the facilities tend to grow with the level of sales.

If you have tried these sources without success there are other alternatives rather than just watching your business disappear. There are various procedures which a firm of Licensed Insolvency Practitioners can organise which may enable your business not only to survive but possibly even resulting in it coming out of recession stronger and fitter.

Where the core business is sound but the company has had its cash depleted as a consequence of say a bad debt and /or falling sales, there may be private investors prepared to become involved. This may involve restructuring your company.

If you are running a company which is experiencing cash flow problems and the bank can’t help ring for free, no-obligation advice please don’t delay – ring Freephone 0800 458 3320 and ask for Phil or visit our web site at www.wilsonfield.co.uk

Members Voluntary Liquidation (MVL)

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Members Voluntary Liquidation (MVL)

Members voluntary liquidation is a winding up procedure for cases where there is sufficient money or assets to pay everyone in full. The liquidation of a solvent company often takes place where the owners wish to retire and ” remove their investment from the company”. It is also useful if there is a breakdown in the relationship between directors and/or members or where changes in the market result in the company no longer being a viable business. It provides a greater degree of certainty than a striking-off and can be a useful tool in re-structuring.

It is potentially more expensive procedure than a striking-off, so why choose an MVL? There are a number of reasons namely:

  • On MVL’s a company can be restored within 6 years of the dissolution date. This is the same as when it is dissolved. The changes came in with the most recent Companies Act changes.
  • An improper application for striking off can result in a fine of £5,000, up to seven years imprisonment and disqualification from acting as a director for up to 15 years!
  • Whether a company is dissolved after following an MVL or by a voluntary striking-off, an application to have the company restored can be made within 6 years of the dissolution date.
  • The onus of realising all assets and distributing to creditors is placed on the liquidator, whereas in a striking-off approach the directors would have to discharge these duties.
    It is easier for a liquidator to distribute funds and assets to shareholders than it is for directors.The company is dissolved after the liquidation is concluded and can normally only be reinstated within two years. (Those pursuing personal injury claims can have it restored at any time)
  • An MVL could enable members to extract their investment from a company in a co-ordinated manner in order to benefit from effective tax planning.
  • As this is not an insolvency procedure there is no stigma of being a director of an insolvent company compared to Creditors Voluntary Liquidation. Consquently, there is no report on directors’ conduct.There is less formal procedure and more scope to delegate to directors.

If you would like more information about MVL’s please – ring Freephone 0800 458 3320 and ask for Phil or visit our web site at www.wilsonfield.co.uk

 

Asset-based lending (ABL)

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Asset-based lending (ABL), generates finance against a company’s existing assets including stock, debtors, plant, machinery and property. It is usually arranged in conjunction with debtor finance – factoring or invoice discounting, so it is most suitable for businesses that supply goods and services on credit, business to business.

ABL was once considered lending of last resort, but times have changed and this reputation is now largely unfounded. People also think ABL is more expensive than a traditional overdraft but this is by no means always true. With High Street banks reluctant to lend (and when they do at much higher interest rates) ABL has suddenly become a real alternative option for providing finance. Costs vary enormously, but generally the stronger the business, the more negotiating power you will have.

So what is ABL and what kind of businesses does it suit?

ABL is particularly good for start-up businesses, because as sales rise, the availability of finance rises with it. It is ideal for quickly-expanding, profitable businesses where they are struggling to finance new orders until they receive payment for items previously sold and invoiced. Sales-linked finance facilities such as invoice discounting and factoring have been proven to help businesses grow far faster than with a more restrictive, traditional overdraft facility.

But the reverse is also true, and many established and stable businesses are seeing their ABL facilities diminish due to falling sales.

Lenders generally like a spread of good quality debtors, so businesses with just a single or a few customers may struggle to get a facility. If debtors are well spread, quality becomes less of an issue.

If you want to discuss ABL or any other form of raising commercial finance contact Phil at Wilson Field on 0114 235 6780 or p.meekin@wilsonfield.co.uk

Power you will have.

Help – I’m Skint!

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Only a privileged few get through life without hitting personal or business cash flow problems. Most of us suffer this way at some time. It can be a short term blip or a serious life-changing experience. If it is not happening to you in this recession, you’re very fortunate – but I bet you know somebody whose business is in financial difficulty, has cash flow problems, etc. Perhaps you are a solicitor, accountant or business adviser and this is not your area of specialism.If you are affected, you may never have been in that position before – so where do you go for help?

Here are some ideas of what you need…

• as a first priority, somebody who knows about business turnaround and recovery
• a positive, constructive “can do” approach
• chances are you will be going through an extremely stressful time so a friendly and understanding approach always helps
• a professional, objective pair of eyes to help you see exactly where you stand financially
• assistance in analysing what options are available – this may be restructuring or re-financing – or a combination of the two
• expertise in dealing with businesses experiencing similar problems
• free initial advice and competitive fees and costs

Many events can result in sudden and severe cash flow problems, including falling sales or a huge bad debt. Perhaps you have “tooled-up” during the good times to cope with expanding sales and now find yourself with over-capacity in terms of premises, plant and staff. With the current dearth of available commercial credit which way do you turn? Alternative forms of raising money other than the High Street banks may be an option, including factoring, re-financing fixed assets, or attracting private investors.

Sometimes, it is evident that the core business is basically sound but where the future is uncertain due to its present format and maybe needs re-structuring.

So if you have heard about (and perhaps worried about) “trading whilst insolvent” or procedures such as Voluntary Arrangements, Administrations, Liquidations or Pre-Packs and would like them explaining please feel free to contact me. Area covered is England and Wales.

You can reach me on 0114 2356780, 07949 085828 or p.meekin@wilsonfield.co.uk.

Financial Planning for Businesses – What’s the Point?

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Sometimes, despite your best efforts at making a long-term, comprehensive plan for your business, something comes “out of the blue” throwing everything into disarray. Like the Credit Crunch. Bad debts, plummeting sales, and a famine in the availability of commercial finance have left many previously-good businesses reeling. Instead of dealing with the rosy position you had planned for – you’re fire-fighting.

Panic sets in. But quite often, a second pair of eyes – professional and objective, will help you see your way not just to survive the recession but actually to come out of it even stronger. The first priority is survival.

Take advice about the shape of your company– nobody knows a business better than its owners but sometimes you can be too close to a problem. At Wilson Field we specialise in business turnaround. Our staff are forward-thinking and creative, offering a fresh, commercially-aware approach to resolving problems. We will do everything possible to help you turnaround your business. Our staff are approachable and will explain what options are available and how they are likely to affect your business.

Where it is evident that a business is basically sound but where its future is uncertain in its present format, we can help restructure businesses which may include arranging finance.

The way forward …batten down the hatches or go for it?

Trading through a recession is not for the faint-hearted. Planning is even more important during and coming out of recession. You need to balance your enthusiasm with realism. Once you know your business has a sound financial base, then you can move forward and consider:

  • Marketing – the temptation during recession is to cut back all overheads, but is the very time you need to undertake market research and explore ways of bucking the trend –drop poor-selling lines, introduce new ones, diversify.
  • Set goals and targets and outline how you are to achieve these
  • Monitor results and take action based on your observations
  • Always remember that “cash is king” so make sure your company has sufficient working capital to fund your plans
  • Do you need to raise finance? Would it be feasible / desirable to attract private investors ?

But, above all, before you embark on any ambitious new plans you need to be certain that the existing financial strength and structure of your business is sound. If you are running a business which has cash flow problems and are concerned about the future, or would like to arrange a free-health check for your business telephone Phil at Wilson Field on Freephone 0800 458 3320 or see www.wilsonfield.co.uk

Don’t Let Bad Debt Drag You Down

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Bad debt can cripple your business, and in the current economic climate there is a great deal of financial uncertainly for firms that extend credit to customers. In some cases debts amount to only a modest sum, which is an irritating inconvenience. But if the amount is large it can cause your business to fail. There is no way of guaranteeing you won’t be hit by a bad debt, but there are steps you can take to avoid the problem.

  • Check out new customers by taking trade references, and
    undertaking a credit check
  • Allocate a credit limit based on your findings, and stick to it
  • If a customer is in any way suspect, ask for payment up-front.
  • Issue your invoices promptly. If you are too busy to do this, outsource the work
  • Have a system for chasing overdue payments. The procedure should become progressively tougher until
    you are paid – or hand the matter to a solicitor or debt collector.
  • Review existing customers regularly, and be alert to warning signs such as a gradual slowing down of payments, offers of payment on account, etc.

Bad debts deliver a double whammy. It’s not just their immediate impact on cash flow and profitability, but the loss of an on-going customer, and consequential reduction in turnover. If you suffer a bad debt you should do the following:

  • Take professional advice promptly to establish whether your business can ride out the storm, and how you can buy time with suppliers, the bank, your landlord, the taxman, – and if you can raise finance.
  • If you are convinced you can survive you need to establish a plan to replace the business turnover which has been lost, or downsize capacity to reduce overheads

If you are running a business which has suffered a bad debt and are concerned about the future, please ring Freephone 0800 458 3320 and ask for Phil at Wilson Field, see www.wilsonfield.co.uk or e-mail Phil – p.meekin@wilsonfield.co.uk , – and don’t delay as this can severely restrict the options available to you.