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This podcast selection is taken from a series of Business Hub radio shows broadcast on Star FM between February 2011 and October 2014 with advice from basic book-keeping through to crowd funding, directors loans, cashflow and a whole lot more!

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Business Trouble - your choices

On the up?

The Business Hub Show - 28 July 2013

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Mark

A positive message this week Garry?

Garry

I certainly hope so. You have been commenting over the past few weeks on how things seem to be improving in the economy and for business, and that we seem to be at long long last on the up.  It’s been a long haul.

Certainly all the stats seem to suggest that we are climbing our way out of what has been a very long period in the doldrums. In fact the slowest economic recovery since modern records began apprently.

Mark

Are we just talking ourselves up though?

Garry

If we are I think that is a very good thing. At the end of the day this is all about confidence. Business owners and managers need to feel confident, if they do, they do stuff and that in itself boasts the economy.  Businesses need to feel they can manage their risk and take bold decisions, that is the only way out of this.

However, the evidence does now seem to be mounting that this is more than a feel good factor.

The British Chambers of Commerce's quarterly economic survey suggests British business confidence has hit its highest level since 2007.

Other surveys have shown a similar pattern:  Markit's June manufacturing Purchasing Managers' Index (PMI) was the highest in more than two years, as was last week's GfK consumer confidence barometer.

The BCC survey showed that in the service sector, domestic sales and orders were growing at the fastest pace since the fourth quarter of 2007, while export sales had grown at the fastest rate since the survey began in 1989.

For manufacturers, domestic sales growth was the strongest in two years and export order growth the best in a year.

Mark

All good news then?

Garry

Yes … but!

There are two things that businesses must consider now that we are in an upturn if we are make the most of it and all benefit and prosper.

The first is that traditionally it is when the economy picks up that the highest level of business failures occur – and there is a reason for that aligned to the second reason this time around, and that second reason is the generally accepted position on a lack of funding for businesses.

The issue that we currently have, as we have covered before on the Business Hub a number of times, is that there are a significant number of under-funded businesses which are just getting by. Referred to in some quarters as Zombie companies – these are businesses which are surviving perhaps only because of low interest rates and are not generating enough profit to repay debt. They are just hanging on. Even businesses which are stronger than that are probably not currently generating enough return.

When activity increases in most businesses this means an increase in working capital requirement. Where is this going to come from?  Therefore cashflow becomes an issue and that is why the failure rate goes up.

With the current market not really delivering finance for, particularly smaller enterprises, at the moment I could see this could be a real issue over the coming months as we see a recovery.

Mark

What would your advice be then?

Garry

I would say planning.

Businesses need to take a long hard look at their positions, be realistic and forecast forward the impact on their numbers on an upturn in business. Then carefully project their cash and working capital requirements, and start looking for a solution should they need one.

That may come from their bank, or one of the alternative funding structures that we have discussed recently. The trick is to start looking at this early not when they start hitting difficulties and have cash constraints.

Most businesses are traditionally bad at planning – this is not a good time to be avoiding it.

 

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