Jameson Smith & Co Ltd

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Tuesday, 26 November 2013

Banks; Friend, or Foe to SME's?

Having read over the weekend of yet another breaking banking scandal is it not about time these disgraceful fat-cats were seriously taken to task? As a company turnaround consultant I come into contact with the shameful banking practices on a frequent basis. This latest ‘revelation’ headlining the newspapers is not news to those of us in the insolvency business as there have been suspicions for years around the insolvency practices and banks. A lot has to do with the banking culture itself which has become more and more arrogant and remote from its original purpose – to lend and provide services to its customers.

Successive governments have had far too close a relationship with the banking heads. The most notoriously bad banking and political relationship was of course between Fred Goodwin, ex RBS boss and Gordon Brown, who has arguably been deemed "the worst chancellor ever".

Gordon Brown appointed Goodwin of all people to advise on the regulatory aspects of banking and sale practices and duly gave good old Fred a knighthood in gratitude. The appointment of Goodwin advising Gordon on banking regulation was not so much the blind leading the blind, as the equivalent of King Herod being asked to advise Mothercare on the latest range of comforters. It should not, therefore, come as any surprise that on top of the rate swap mis-selling debacle we now have this latest, equally shameful list of accusations against RBS of stealing property at an undervalue.

We come into contact with situations like this through our line of work and one example could be a recent case where a director was sold ‘insurance’ to cover his company against rising interest rates until, you guessed it, the interest rates fell and his cash-flow was destroyed. This was an interest rate swap product and even though he complained, he got nowhere with the bank and eventually the company went into default with his mortgage payments – the actual mortgage he had ‘insured’ and trying to protect.

The director had secured a RICS valuation for over £2m and yet, just one year later when the company, now starved of cash due to the horrendous interest rate payments he was paying to the bank, was forced into company liquidation. The bank appointed liquidators then sold the property off at a value of £800,000 knowing that my client had personal guarantees in place further protecting the bank. He not only lost his business but also his wife, having long suffered the pressures of supporting a stressed husband, she had finally had enough. He also lost his children and immediate access to those that made his life worthwhile. All this because greedy individuals looked after their own interests first and believed they had the right to do what they could with no thought that they may be doing wrong. But these ‘scams’ do not only involve bankers, they drag in the associated large insolvency practitioners who sit on the banking ‘panels’ as they may have too cosy a relationship with the banks. This may be another area for investigation by Vince Cable who appears to me to be one of the few politicians with any sense of integrity. 

Of course the newspapers rightly focus on the lost businesses and the hardship that this causes, but what it also does is knock our confidence in the established banks and the establishment itself to an extent. It is hardly surprising why banks are so despised; try getting a commercial loan, or worse a mortgage and the banks get tighten-up. Any mortgage applicant is treated like a criminal as they have the audacity to dare borrow money to improve their lot. 

Of course this would be funny if there wasn’t a more serious side to it and the serious side is the human fall-out of the pressure that these scandalous banking practices bring about. The fact that the Co Op Bank, set up to serve its members has been brought to its knees with £1.5billion gap means pensions will be underfunded and genuine investors will lose money. 

The banks have a lot to answer for and there does not seem to be any end to these banking scandals that have hit every man woman and child in this country and arguably the western world. The bigger question is what do we do to put this right? 

Written by: Mike Smith

Wednesday, 20 November 2013

Middle-Class Clouds On the Horizon...

We no sooner start to come out of the recession when we see the latest personal debt figures which are truly shocking. There is an estimated £1.43 trillion debt which is around £54,000 for every family in the UK with around £160m of this amount being unsecured debt.  Although there are claims the hardest being hit are the poorest in the community there is growing evidence that the middle classes are being hit hard too. We have always been led to believe that if you work hard you would get the rewards. The middle class is very English and is an established part of our culture, but the strains of the last few years are beginning to show. There are a number of reasons for this and not least, the incremental and insidious tax increases along with rising family maintenance costs for the middle classes. Whilst going to a private school for a child’s education is a privilege it is extremely costly and the school fees have doubled in the last decade. The increases have meant cut backs on holidays, clothes and home improvements for over 70% of the middle class according to a recent survey in a UK national newspaper.

The upshot; as cash is squeezed, more of the middle class are resorting to their credit cards or unsecured loans rather than be seen to cutting back. My biggest concern of course is the Bank of England (BOE) interest rate itself. Bearing in mind we are in the middle of a housing boom and sales have gone comparatively through the roof, these sales have been propped up by the lowest interest rates in history. For those of you who, like me, were are old enough to remember the Eagles, Wings and Slade as pop icons you will know in the seventies, interest rates were in their teens, literally. With a mortgage rate of 17% things were very tough and to be fair these were the highest mortgage rates ever known, but whilst these rates are unlikely (hopefully) to be seen again you have to ask what happens when the Bank of England rate increases to somewhere near normal. What is normal I hear you ask? Well as a test what do you think the interest rates were in 2008? Answer around 5%. It’s interesting when you look further that the Bank of England rates have been a maxed-out at 6% since 1999, but it is a sobering reminder that anyone taking out a mortgage now should at least cost in a 2 or 3 base point increase.

To add insult to injury, benefits are being cut for the higher rate tax payers and this, from a Conservative government.

I think everyone understands that in these times of austerity few ill sympathise with cutting back on holidaying abroad or replacing the ‘older’ car, but this lack of spending will have to show somewhere in the overall economy. This government should realise that the middle class has been a UK cash cow for quite some time and the big question is will the milk dry up over the next couple of years.

Written by: Mike Smith

Business Boost from West Sussex County Council

West Sussex County Council has committed to giving local businesses a boost through their 'Be The Business' programme. The programme is aimed at providing grants for new start-ups with potential for growth and also providing funding to those successful applicants with an existing business, needing to grow by taking on Higher Apprentices.

The 'Be The Business' programme is part of the 'Kick Start' programme which was set up in 2011 to help unlock the potential of the local economy within West Sussex.

The programme consists of three main focusses:

1. Business support, offering help for local companies through a series of workshops and events providing access to expert business advice and support.

2. Business 'start up and grow' grants, which is offering up to £30,000 of funding to successful applicants and is available to existing and new start-up businesses within West Sussex.

3. Ambition to produce at least 50 budding Higher Apprentices across the county for ages 18-24, using grants for existing businesses of £2,500 towards salary overheads.

This sounds like a great programme for both existing and new business start-ups within West Sussex. We hope to see more just like it across the rest of the UK.

Wednesday, 13 November 2013

Where to Turn for Business Advice?

Most people in business will have suffered a sleepless night or two when cash-flow problems loom, but where do business people turn to when they need someone to help? Loved ones are usually out of the question as they will inevitably have been contaminated by the emotion of the situation anyway. The old days are gone when you could sit down and talk to your local branch manager who knew you well and had the authority to make the decision for you. Nowadays, you are more likely to be sold something completely worthless by a ‘relationship’ manager who is probably too young to even have had one – a relationship that is. The Citizens Advice Bureau are not in a position to advise if you mention the word business and debts in the same sentence and besides, they are becoming few and far between as government cuts dig deeper.

A religious belief of some kind can provide someone who simply listens, but you are unlikely to see a burning bush, or have a revelation that indicates a way forward.

It seems that the internet has been the saviour of some who are able enough to switch on the laptop and search for help. Certainly we get our share of truly dreadful and often heart breaking accounts of how someone has found themselves in difficulty.

Despite what most believe, business people in trouble are not all directors shirking their responsibilities, though it is easy to see why it may appear so when you are a creditor and a company that owes you money enters company liquidation. From experience usually around 20% are forced to close through an outside unforeseeable incident such as stroke, heart attack, sudden death, or the impact of a family death, or long term illness. A further 30% are often guilty of no more than putting too much faith in a particular project, or company, and OK it may be mismanagement, or simple inexperience, but we all have to learn.  Making mistakes whilst learning can be a very expensive way to learn, so this should be avoided at all costs – consult a professional.

For most small businesses they may turn to their accountant, but this is hardly fair on them as in most cases they will see a client once or twice a year if they are lucky. The medium sized companies may have an in-house bookkeeper/accountant, but they will be too close to the problem and unfortunately in my experience usually, unfairly, carry some or all of the blame for the company predicament. If you are a sole trader or a partner in business it is likely that the first person you speak to is either your life partner, and or business partner. Either is a mistake and often leads to the ‘blame game’ which in turn applies negative pressure on the relationship. It is a sad fact of life that around 60% of those contacting us will be separated, divorced or splitting up. We sometimes forget the impact on families business stress can have.  

If the business is not viable and you are a sole trader then there is no difference between personal and business debts. It is not better, as was suggested by a recent client that; ‘if you are a partnership then your debts are halved aren’t they?’ The answer is it is not as simple as that and it can be worse in some cases where, as is usual, one partner has no assets and the other has lots. Unless you have a limited liability partnership and or a legally binding partnership agreement then the debts will be joint and several. So if your partner is about to sign a contract for a new BMW on the partnership business account you may want to hold back the signature as you could end up paying for it if things go badly.

You would think directors would do better when the company has limited liability? Not so, as banks and suppliers obtain more personal guarantees and security for provision of supplies or lending. Unfortunately if the company does end up in liquidation the insolvency practitioner is not allowed to help the director by regulation. If you think about it this makes sense as the insolvency practitioner acts in the best interests of the creditors not directors. Whilst an insolvency practitioner must have due care for a director with a personal guarantee they cannot give direct advice on the personal guarantee when acting for the bank as this is a clear conflict of interests. Of course the biggest taboo subject for an insolvency practitioner and guaranteed to make him/her to go pale prior to being engaged is the subject of an overdrawn directors' loan account. In liquidation, this can have very serious personal implications for any director and the insolvency practitioner will be duty bound to pursue these on behalf of the creditors, even to the point of bankruptcy. Remember who the ‘practitioner’ is acting for? This situation should be discussed in detail if an insolvent liquidation is being considered as a potential solution. There are unscrupulous ‘practitioners’ who are well known in the business who will actively seek out na├»ve directors seeking a ‘liquidation bargain’ and thinking that they are being adept by obtaining the cheapest liquidation on the internet, the truth is this could not be further from the truth. If a liquidation fee seems too good to be true then it probably is and there will only be one loser.

If a liquidation is being recommended to you as a solution ask direct questions and get straight answers and if need be get confirmation in writing as to what the process will be, before, during and after liquidation. If in doubt, ask to speak to past clients and check for testimonials on the ‘practitioners’ website. If a director entering into liquidation does not perform these very simple checks then they do so at their peril.  Just as the internet can be a saviour it can also be a dangerous place too.

Your accountant may know someone who will not simply and automatically think of liquidation as the first port of call and if you have seen previous blogs you will know this is unlikely to be a modern insolvency practitioner. You knew I was going to say "seek out a business turnaround consultant", but I genuinely think this is the best option in today's business climate. They are used to working in high pressure and insolvent environments and if they are any good they will provide initial free advice and even solutions for you.

Whether you are a director, sole trader, or a partner, if you are having severe cash-flow problems and you are worried about your personal situation you should be speaking to someone who looks after your interests whilst having due care for the creditors? Someone who is well used to negotiating with creditors and someone who has earned their stripes through having managed many businesses, gaining hard business experience. Doesn’t that make more sense? Do yourself a favour and seek out a business turnaround consultant, you can learn more here at the Turnaround Management Association http://www.tma-uk.org/.

Written by: Mike Smith

Monday, 11 November 2013

Do insolvency practitioners do turnaround?

I read a very interesting article recently highlighting this question and it may seem an odd question to ask, but do insolvency practitioners actually rescue companies, or simply put them into liquidation? Put plainly, do insolvency practitioners rescue companies? The question was posed by a well-respected rescue CEO and consultant with over twenty years in rescuing businesses. My experience is, I have to say, not good when answering this question. I have been advising large medium and small companies for over thirty four years now and rescuing a failing business is not for the faint hearted, that’s for sure. So why is the question even being asked? Well I suspect this well respected gentleman has had similar experiences to me over the last five years or so, through the heat of a recession.

Unfortunately, I do believe insolvency practitioners generally have lost the appetite and more importantly lost valuable experience in rescuing companies and have put more focus on more expedient liquidations. In the last year alone we have been contacted by around 2-3,000 company directors seeking business debt advice. The majority of directors that we have advised who had also spoken previously to competing insolvency practitioners were genuinely surprised and greatly relieved when we discussed how we may be able to rescue the company and not simply put it into company liquidation. Now, it is not possible to rescue all companies and I accept there are a lot of so called zombie companies out there, but shouldn’t we at least work from the premise of ‘how do we save this company’ rather than how quickly can we close it?   

Certainly the majority of insolvency practitioners appear driven more by regulatory and compliance matters than saving the company. I guess this is understandable when they are subject to spot checks and can lose their licence if not completing procedures thoroughly enough, but is this the real reason or a symptom of something else?
Over the last five years or so, since the recession, we have seen and heard of serious investment in compliance policies and procedures which has turned into an entrenched dogma creating a completely different type of insolvency practitioner to that which existed 7-10 years ago I suspect. There is something else though when you look at the increased numbers of staff. The new kids on the block don’t know anything else other than compliance, regulations and following the necessary processes and many have no first-hand experience of rescuing a company, or negotiating with creditors over business debts.

With the economy improving and the Insolvency Service cutting down in size, it may be that a downturn in insolvent liquidation cases may well be followed by a number of insolvency practitioners starting to struggle and being taken over. It may seem improbable, but there is already evidence in the market place that insolvency practitioners are trying to change their approach as they begin to struggle. The insolvency practitioners that cannot adapt to the changes will struggle to survive in a market where desperate practitioners are already pushing liquidation fees down in an attempt to reel in more business whilst their profit margins get squeezed. A note of caution here; far too many directors do not think to check the website of insolvency practitioners for genuine testimonials, or ask to speak with the insolvency practitioners' past clients. This should always be the first action that any company director should take who is thinking of engaging, or referring an insolvency practitioner.

The 'big boys' appear to have swallowed up a significant portion of the ‘company rescue’ talent, but not every SME can afford their fees and in any event, these bigger firms of insolvency practitioners will continue to ‘cherry pick’ their clients based on certain prerequisites. The average SME traditionally turns to his/her accountant for help and that is as it should be as the first port of call. Perhaps the SME accountants should check who they refer their clients through to in future more than they previously have when they want a company to be rescued?   

Back to the question: Do I think insolvency practitioners do turnaround? Well, the larger clients will probably be able to afford the big names, but the smaller companies are left to a roll of the dice as to whether someone will genuinely try and turn the business around, or simply put it into company liquidation.
There is a simple solution though – check the websites and how about asking to speak to past clients? 

Written by: Mike Smith

Thursday, 7 November 2013

Coming Out of Recession – Good News for business?

We are coming out of the longest recession in recorded history so this has to be good news doesn't it? The UK economy, we are told, has the strongest forecast in Western Europe. So, if the signs of consumers finally opening up their wallets are there then struggling companies across the UK should be pleased, and they can pat themselves on the back as having ‘made it through the storm’, right? Well not really. I don’t want to be a dampener on a struggling director’s hopes as there are indicators we can be cautiously optimistic about. The problem is based on past experience having been through three recessions that the most dangerous time for a cash-strapped company is when coming out of recession. The reasoning behind this is simple. If the ‘struggling’ company has cut back to the bone and cannot raise personal finance; ploughed in personal/family cash; reduced staff; sold off assets/stock; maxed out the company credit card and the banks being as helpful as ever and refusing to lend – the ‘straw that breaks the camel’s back’ is usually an influx of new orders.

You may think this is nonsense and that any bank with an ounce of commercial common sense would see a full order book as an indicator of something positive. Not so. We have had many cases where the order books have been full to the brim and the banks have refused to even provide an overdraft. They (The bank) did by the way allow an unauthorised overdraft of as much as the company wanted but at 27.9% APR. Factoring may help but my experience is this usually creates more problems than it solves for smaller companies.

So when orders start to increase and the bank account is empty what can directors do? There are few points to remember. Take a common sense approach and remember that when a patient has been very ill and is still very weak then start with a little of the right food often rather than gorge on too much of anything all at once.

My meaning here is that is important to gear up slowly if the company is cash-strapped and do not over trade and take too much on board. It is easy for a director to convince themselves that the more work you do the better things will get. Not necessarily – it could make matters worse. The fastest way to lose a good name is to let customers down. So, it’s important not to take work on that cannot be fulfilled competently and effectively and getting paid.

A director should set reasonable achievable goals and make sure the accounts/finance department talks to sales and is able to fund the growth. Ensure regular and frequent meetings are taking place and this is the time the director must have his/her finger on the pulse and work even harder and smarter.

If directors are a ‘one man band’ then they should be talking to someone other than a life partner/spouse that will provide an objective, informed unemotional view of the situation. This is an ideal time for the accountants to step in and provide support I would suggest. Whoever the director talks to they must keep the dialogue on-going until the company is back on its feet to make sure there is no disconnect between the service you have provided and what is paid in – not owed in. A business can grow on promises of payment – they need cash.

The nature of the business the directors are involved in will also matter. For example if they are in a building related trade then it may easier to get clients to fund at least part of the project with up-front cash. This can make a big difference to the chances of survival and not. This course of action may be more difficult with other businesses and directors will need to work smarter when providing the services to the client. For example is it worth having a word with your key supplier and showing them the full order book and offer to make them the sole supplier so they can see the benefit of increased sales.

Whatever the director does they must take care and whilst it is good to be cautiously optimistic it is foolhardy to believe simply obtaining lots and lots of extra work in itself will solve the problem – it may just make matters worse. Take care out there. 

Written by: Mike Smith

Tuesday, 5 November 2013

Total Number of Business Failures in England & Wales Declining.

Some very surprising information was released recently after insolvency data suggests that less businesses within England and Wales are failing. The data comes from figures taken from the third quarter of 2013.

The reason this information comes as a surprise to most within the industry is because insolvencies tend to increase during a period of economic growth, potentially due to a less cautious approach to business risk management amidst a more optimistic environment.

The statistics from the trade body R3 show that a total of 3,875 companies were put into liquidation during the third quarter of this year which is a 3% drop in comparison with the previous month and if the same period is compared with last year it is a 2% drop.

What does this mean for the insolvency industry? What does this mean for the UK economy? Certainly, the figures; on the face of it, appear very positive. With less businesses seeking business debt advice in England and Wales it certainly appears as though things are improving in this area.


Monday, 4 November 2013

Could Expansion of Gatwick Airport Help UK Economy to Grow?

In recent news there has been talks about the expansion of Gatwick Airport and the effects that it would have on the UK economy and helping to add to West Sussex's already, relatively affluent status.

There are some concerns over the potential environmental impact that the airport's expansion will have on the surrounding area. However, the owners of the world's busiest single runway airport have formally lodged the proposal for the expansion and the County Council have voted 42 to 10 to support it in principle.

Although things seem quite progressive at the moment, the current legal agreement that prevents any additional runways being constructed until 2019 still firmly stands in place, so we may have a while to wait yet.


Blockbuster Gone Into Administration... Again.

DVD & video games rental firm, Blockbuster, are entering Administration for the second time according the private equity firm Gordon Brothers Europe who owns the company.

Blockbuster went into Administration in January 2013 for the first time due to increasing competition from online film streaming companies. The DVD firm attempted to restructure its business and come back as a predominantly online-based rental company.

The business has admitted that the recent restructuring plans have not gone as intended and that pressure from having the licensing deal with the US parent company rejected after trying to set up a digital online platform, has hit them hard.

Future plans appear to include around 32 redundancies within the UK headquarters of Blockbuster and the remaining 264 stores are to stay open whist they look to find a buyer for the business.

Blockbuster currently employ somewhere in the region of around 2,000 staff and this is around half the amount that they employed t of the first Administration at the beginning of the year.

Blockbuster is just one of the increasing amount of large retail companies to be found struggling with insolvency this year. What does this mean for the future of the UK retail industry?