Tag Archives: UK economy

Financial Troubles Spell Tough Times for Small Businesses

The start of 2017 looks set to be a tough period for small businesses. With increasing number of businesses being wound up, it appears the high street’s suffering is far from over.

insolvency small businesses

The past twelve months have been hard for small businesses, and it doesn’t look as though 2017 will offer much respite. Changing consumer trends, and economic and political factors, are already taking their toll on the UK’s High Street.

Over 760 businesses ceased trading in December 2016, with a further 1093 small businesses scheduled to be wound up this month. And, according to a survey of the latest insolvency notices published in The Gazette, some industries are being harder hit than others.

Small Business Suffering

Between the companies wound up in December and January, as well as those which failed in the third quarter of 2016, it brings the total number up to nearly 5,500 failed businesses.

With the official figures for the final quarter of 2016 due for publication in January 2017, cause and effect is yet to be confirmed. But it is certain that wherever a business is unable to weather restrictions in cash flow, insolvency looms.

The research was carried out on behalf of London insolvency practitioners Hudson Weir. It reveals that some industries are being hit harder when it comes to failing businesses. The study revealed that 14.5 per cent of these companies were operating in the retail and food and drink sectors.

However, it’s in the construction industry where the impact is felt most acutely. According to data collected during the second quarter of 2016, 2450 construction companies ceased trading. Next most affected was the wholesale, retail and repair of vehicles sector, with 2065 company insolvencies.

And it’s not only small businesses suffering from lower trading towards the end of 2016. Retail giant, Next, has issued a warning over trading for 2017. The company saw a drop of 3.5 per cent in the run up to Christmas, and anticipates a similarly gloomy picture for 2017.

Brexit or Cash Flow to Blame

The reasons for company insolvency can be complex, ranging from unrealistic planning through fraud and unforeseen loss of market share. But the root cause of is it frequently simple: inadequate cash flow.

Financial trouble tends to strike early in the business life cycle. Only 41.4 per cent of the UK businesses started in 2010 survived to their fifth birthday.

But how much of an impact has the Brexit vote and uncertainty had on insolvencies? Although the UK economy seems to be surviving the immediate post-referendum period, vulnerable business sectors – like construction – have experienced contraction.

Restaurants, cafes and other food outlets are heavily represented in the latest insolvency reports, too, a trend which could reflect the recent well-publicised rise in food prices. Even large companies such as catering giant Compass have been affected by the consequences of a weaker pound.

Hasib Howlader, a chartered accountant at Hudson Weir Ltd, commented on the survey results.

“Brexit is unlikely to bring good news for small businesses, and it seems now it’s just a question of how bad it’s going to be. With more than 40 per cent of small businesses struggling to survive beyond five years even in a pre-Brexit climate, it’s now more important than ever for them to be looking for warning signs that their business may be unhealthy.

“If cash flow is a problem, and you can no longer pay your bills as they fall due, the earlier you speak to an insolvency practitioner the better.”

Mitigating the Effects

Even though businesses are at the mercy of circumstance, it’s possible to mitigate the effect of uncertain situations like Brexit. Hudson Weir recommends that business owners:

  • Get to know the normal patterns in cash flow data

When a business keeps good records of its cash flow over a period of years, it’s possible to identify seasonal and other trends, and plan for them.

  • Look to the future

The logical next step after record-keeping is making a cash flow forecast. A clear-eyed view of incomings and outgoings six months to a year in advance helps manage business expectations.

  • Keep up to date with invoicing and payments

Each invoice should be accompanied by clear payment terms, and it’s well worth enforcing these. It’s also worth getting to know customer payment habits, since any unusual delays can be early indicators of financial trouble.

  • Make long payment terms the exception, not the rule

30- and 60-day terms make cash flow management more complicated.

  • Focus on managing cash flow

This is something even highly profitable business should do, as out-of-control cash flow undermines profitability and jeopardises future prospects.

An Expert’s View on the Future of the UK Economy

The media have painted a gloomy future for the UK economy thanks to the events of 2016. But one is breaking ranks – and it’s not all bad news.

the future of the uk economy

A few weeks ago, Procurement Heads enjoyed an insightful business breakfast hosted by the Chilworth Partnership & Venture Recruitment Partners at the Chilworth Manor Hotel. While we were there, we heard from one of the UK’s leading economic commentators, Alex Brummer.

Brummer has been City Editor at the Daily Mail since 2000 and is a multi-award winning economic finance commentator. Brummer was speaking on the topic of Brexit and the potential impacts on the British economy.

To add further spice, there was also the topic of “Trumpenomics” to discuss after the much-publicised US election result. Brummer is no fool, and whilst he was pro-Brexit, he empathised with the shock both events have caused.

Sense of Optimism

Despite the doom and gloom from his peers in the media, there was a sense of optimism from Brummer. He described the UK economy as “having taken the punches pretty well”.

Indeed, in the 3rd quarter we have seen growth at 0.5 per cent. Additionally, we are likely to see annualised growth in the UK of around 2 per cent. This is a faster rate than any of the Group of Seven (G7) countries.

From a recruitment perspective, there is much to celebrate as well. The unemployment rate has dropped to 4.8 per cent, and the number of people in employment is at its highest in 30 years.

Whilst the Chancellor’s Autumn statement next week will likely reveal a dampening of economic expectations, Brummer asserted that infrastructure investment in the 3 ‘Hs’ will boost the economy in time – Hinckley Point in Somerset, HS2, and the expansion of Heathrow.

UK Economy “Punching Above its Weight”

Back to Trump in the US. Brummer argued that his pledge to reduce corporation tax from 37 per cent, and a massive increase in infrastructure spending, will see the UK’s burgeoning Services sector well placed.

In this respect, he asserted that the UK ‘punched well above its weight’, operating at an annual surplus of £100 billion. Only time will tell just how this new political and economic relationship between Britain and the US will work.

One thing is for sure is that Brexit certainly hasn’t been an immediate disaster, reflected by the strong performances of the FTSE 100 and FTSE 250 since June. Brummer claimed a lot of this is down to businesses bringing their operations, and therefore more of their investment, back to Britain.

Tangible example of businesses positive reaction to Brexit can be seen at Nissan, Ford and more recently Google, all making positive long term commitments to the UK. More businesses investing in Britain is surely a good thing for our employment?

Challenges to Come

Brummer warned of the failings of Europe, describing the EU as an “Economic disaster”. And the facts are scary:

  • Greece’s GDP has dropped by 25 per cent,
  • Youth Unemployment in Italy is now at 37 per cent, and
  • Growth since Germany joined the EU is stagnant.

Brummer did not underestimate the UK’s adjustment to Brexit and nor should we. But perhaps we should try and look at the positives of the events of the past few months.

There are challenges to come, like the possibility of a trade war, Trump going back on his economic policy, and the Pound weakening a lot further. Like many in the room, we came out with some reasonable optimism to see this not as a problem but as an opportunity.

To quote Brummers’s closing remark we should “see the glass as half full, not half empty”.

Is There a Case for a Leap Year Public Holiday?

It’s a leap year this year, meaning that on the 29th of February we have a whole extra 24 hours available to us.

Leap Year Day

However, looking at it in a different way, as the extra day this year falls on a Monday, work gets an extra day from all of us. For salaried workers this pretty much means employers are getting an extra 8-10 hours for free. According to some calculations, this means workers lose out on around £113 on average.

Now, before you all run off and demand either a day off or an additional day’s pay from your employer, we should examine if there is a case for an additional, global public holiday.

What is a Leap Year?

Just by way of context, a leap year occurs once every four years. An additional day is added to the end of February in order to ensure that our clocks and calendars remain in sync with Earth’s seasons.

Scientifically speaking, the Earth takes exactly 365.2422 days to complete its orbit of the sun. However, the Gregorian calendar only runs to 365 days. These additional quarter days are added together, and, once every four years, a leap year occurs.

Due to the rarity or novelty of the 29th of February, a variety of ‘traditions’ have come into being during leap years. One of the most famous is that a woman can propose marriage to a man at any time during the year. Tradition also dictates that, should a man turn down the proposal, he needs to pay a fine. This can be anything, but around the world it ranges from 12 pairs of gloves (Denmark), to fabric for a skirt (Finland).

Additional Public Holidays

There is precedent around the world for the creation of an additional public holiday. The most famous in recent years was the UK public holiday for the wedding of Prince William and Kate Middleton. It was estimated that the holiday brought an additional £500 million into the UK retail sector, with another estimated £2 billion boost from tourism.

However, not all the economic stories from the day were positive. There were concerns at the time that the additional holiday was bad for the economy, which was still recovering from the financial crisis at the time. Leading economists had predicted that the proximity of the wedding to the Easter weekend would reduce growth by between 0.1 and 0.2 per cent.

In Australia, the Victorian Government is facing additional costs of AUD $405 million (£200 million; US $287 million) through the addition of two new public holidays to the calendar. Even factoring in economic benefits such as increased shopping, travel, and complimentary spending, PwC have stated that the costs will ultimately outweigh any benefits.

Bank Holiday Mondays

When compared to the rest of the world, the UK actually has fewer bank and public holidays (a total of 8) than many other countries. In Japan, the total is 15, in Spain, it’s 14 and there are 11 in China. But there is still hesitance, from both the UK Government and business leaders, to increase this number.

Recent figures from the Centre for Economics and Business Research (CEBR) might go some way to explaining why. The CEBR estimates that each bank holiday in the UK actually costs the economy in the region of £2.3 billion. There is also the argument that the close proximity in the calendar of bank holidays can have an impact on businesses.

The accuracy of these figures could be debated, as it has also been argued that any loss of growth due to holidays is recovered later in the year. There is also the argument that by spreading the holidays out, the overall cost to the economy may actually drop.

There are also many positive trends for businesses see around the Easter weekend. Many people will use the weekend to start their annual DIY attempts in the better weather. In fact, it is estimated that 15 per cent of businesses see a positive result from bank holidays.

So, the 29th of February…

The truth is, no-one is entirely sure whether or not bank holidays are good or bad overall for the economy. This also goes for the argument for the UK having more bank holidays, including the potential for a leap year one.

The goodwill impact of an extra day off is hard to measure, particularly if employees return to work refreshed and ready to work hard. Plus, as the 29th of February only appears once every four years, surely it couldn’t have too great an impact.

For the time being, we’ll just have to content ourselves with what we have. But if you’re really desperate for a leap year holiday, you could always sign this petition