Jameson Smith & Co Ltd

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Thursday, 30 January 2014

Beware Banks Bearing Gifts

I’m sure people must get fed up with me apparently hammering the banks, but believe me it is not because I want to. I deal with many business owners on a daily basis who are in desperate trouble and need urgent advice. The point is I am a contact point for business owners in distress so do pick up trends earlier than our political elite.

I have mentioned this before but it is worth mentioning again: "beware the bank trying to help you" – there is no such thing as a friendly bank. You may be lucky and meet personable people who work for the bank but when the chips are down they will pull the plug on your business without missing a beat. Sounds obvious but I had a conversation last week where a director had gotten himself and his company into financial difficulty. He dealt with major UK companies and they has started to lengthen his payment terms and this was hitting his ability to pay suppliers.  His friendly neighbourhood bank allowed him to go into his unauthorised overdraft facility at a rate of 29.7%. So his charges were mounting up but he was in control.

He, naturally, contacted his bank and they offered to ‘help’ so his ‘friendly and supportive relationship manager’ made an appointment for him to speak to the factoring side of the bank. The bank obligingly provided the factoring services and indeed the company cash-flow improved for about 2-3 months. Then the real problems started. The penalties piled up because he was not following the agreed process or documents which is fair enough, I guess. Then as the bank got a better understanding of the debtor book they increased the charges and penalties without notice – as they have the right to do. His cash-flow went from bad to worse and he was now in a worse situation than before. Money was withheld and suppliers were getting angrier and withheld critical supplies due to none payment. Contracts could not be fulfilled and eventually major orders were cancelled and he was hit with penalties on that front too.

Any factoring facility will take a personal guarantee supported by a charge over all the company assets which included the debtor book and anything else of value. Oh yes and they had also taken a charge over the family home bless them. The bank put in their own administrator to take over the running of the business securing the interests of the bank and that’s when I was contacted (as usual).

I told him it was too late as once the bank have the charge over the company assets they become a secured creditor so have the right to put in their own administrator when they feel like they have the grounds. His voice was shaking with emotion as he realised there was nothing he could do and 13 years of hard work had been wasted and he now had to tell 18 employees they were no longer needed. It also dawned on him he now had to tell his wife that the family home was at risk and what the impact may be on his children.

The fact of the matter is in these circumstances a director loses all control over everything and the banks have secured their position belt and braces – what is wrong is the director is not allowed to protect himself by being allowed to manage the debtor book collection. If the bank don’t recover sufficient money in from the debtor book they have the director’s personal guarantee and family home to fall back on. And oh yes there are fine print penalty clauses in the factoring agreement for early termination!

My message is clear beware banks offering any help whatsoever and check out every agreement before signing and get relevant professional specialist advice every time. It may cost you a few hundred pounds but it’s better than potentially losing your business, your home. Banks are not trusted for good reason – don’t take my word for it, remember what the Barclays CEO said last month ‘it will take a decade to win back the trust of the public.’ He is not wrong.

The lesson is clear if you are in business, never, ever trust an outstretched hand from a bank in ‘friendship’ without seeing what is in the other had behind their back.

Be careful out there.

Written by: Mike Smith

Thursday, 23 January 2014

A View on UK Economic Recovery; Bank Lending & SMEs:

Some interesting statistics flying around over the weekend what with the economy doing far better than expected it looks like the Bank of England governor may need to make a decision on interest rates in a matter of a few months. I am not sure Carney will be forced into making the decision that soon. He doesn’t strike me as a man who will be forced into any situation. The economy badly needs a long spell of stability and low interest rates, not a step into the unknown that a hike in rates would bring about. We have a fledgling housing market that is seeing a well-earned recovery and with wages still suppressed there is unlikely to be a return of a much feared ‘bubble’. Carney is more likely to link wages to inflation as a ‘get out of jail free card’ to get himself off the hook.

I may be proved wrong but I am hoping we don’t see any rates rising until well into Q4 2014 or early 2015.
Barclays decision to ‘transfer’ 800,000 of its small businesses away from free banking towards a charge based structure will do no favours for the already hammered reputation. Barclays insist the move will only affect about 250,000 businesses currently banking with Barclays – so that’s all right then. Business lending has never been a priority with the banks barring a few exceptions and is rarely more than 10% of any the major banks total lending. Major banks do not like lending to small businesses and never have to be fair to them and the Basel II rules make it more difficult for lending to take place.

Okay, so I understand business lending had risen slightly over the first half of 2013, but if you are already starting from a very low starting point then it’s not really great news. In any event, I now understand the percentage of lending to small businesses has fallen back by about a third to around 7% of total bank lending that may contribute towards businesses having cash-flow problems and seeking debt advice sooner, without the support they need from the banks. The bottom line is small to medium sized businesses are just not a core demographic for any of the major banks and the sooner businesses realise that banks are no friend to business the better.

Written by: Mike Smith

Tuesday, 21 January 2014

Technology Changes for the Better

I have read that the much maligned tax disc is on the way out and we will no longer have to struggle to reach across the dashboard to stick the thing to the windscreen. Apparently, very few people get reported for not displaying a disc as it is all done with special cameras now and over 200,000 were caught in 2012. The change will mean we can finally pay the annual charge on a monthly direct debit which will help those people planning the family finances.

The Councils obviously need to raise funds and in the main they do a good job under difficult circumstances but outsourcing rates collection to save money was and still is a bad idea. Councils should not forget they are elected officials to act on behalf of the local people and they should be very careful how they raise money. Many Councils have forgotten this and have outsourced rate collection arrears to private companies who, despite recent regulatory changes, still churn out inexperienced and poorly trained bailiffs. I am very often involved in helping directors secure their future and this often means fighting-off bailiffs. I have had several instances of poorly trained bailiffs turning up at a director’s family home, sometimes though not always, because it is the registered address at Companies House.

In one spectacularly bizarre case I had a very distressed wife of a director call me for help when her husband was out at work after requesting debt advice from our company. A ‘very aggressive’ young man; a bailiff, was threatening to seize assets as he was chasing a business debt. Apparently he had forced entry by pushing past the frightened wife, who by the way was completely alone and lived in the Countryside. The bailiff was entering her best family china displayed in the kitchen cabinet when I asked to speak to him on the phone.

He was very aggressive and did not have a clue what he was doing and when I pointed out that the debt was a limited company debt and nothing to do with the family pottery collection he started to back down. I also asked if he had shown any identification and he had not, nor had he asked for permission to enter when he pushed past the distraught wife. He quickly withdrew when he was threatened with the police.

There are a few well known bully boy companies who regularly intimidate often vulnerable people when they are at their lowest. Due to the number of complaints, a lot of bailiffs now wear cameras and recording devices to ensure threatening behaviour is minimised.  So this is another technology advance that will hopefully help improve their ability to go about their daily activities without the threat of intimidation. Just a thought, but do traffic wardens wear cameras? 

Written by: Mike Smith

Thursday, 16 January 2014

The Definition of Insanity?

Albert Einstein is famously quoted as defining insanity as doing the same thing over and over again and expecting different results. So how does this apply to business?

For many of us in business we can lose our way on occasion; we are Human after-all. We often get stuck in a rut, doing the same habitual tasks that have historically worked for our businesses day-in-day-out; but what if those habits stop working? You are then faced with a quandary as to which direction to turn, or what behaviour to take on. This can inevitably lead to business debts being accrued as the business owner keeps plugging away at the same tasks in vain.

It stands to reason, therefore, that if we are faced with a business challenge that cannot be overcome by using the same old tactics we've used for years, we then need to change our actions and behaviour and we can only do this by changing our state and thought processes which differ from the out-dated versions of our past.

Some of the very best ways to change your state and thought processes are to make changes in other areas of your daily routine such as changing your environment; are you stuck in the same seat, at the same desk, in the same room? Could this be having a debilitating effect on your mind and your creativity? Possibly... Another way to help change your state and thought processes is to do regular exercise. OK, so you've heard this one a thousand times before; exercise is healthy, but it can also help change your mind to become more positive through the release of natural happy hormones called endorphins and with the added benefit of getting the blood pumping around your body and aiding blood supply to your brain.

So, to sum up; if you want to change your state and your thought process to become a more creative business person there are many things that you can do which may help, but these are just a couple of ways that could help you to achieve your goals in your business by changing your approach, one step at a time. We hope this helps you with your goals.