If SAGE were a business

I am and never have been against Covid restrictions. Probably best to make that clear before elucidating on the subject but at the same time, I also believe that the “experts” require the same scrutiny that would be expected in the business environment

This is damning. Even their most optimistic predictions surrounding Omnicron have been extraordinarily wide of the mark. Yes there is a case for caution but the restrictions they demanded on the basis of this very poor modelling would have hit businesses hard. There’s two sides to this

Perhaps worse was the arrogantly dismissive attitude towards the South African medics who had considerable on the ground experience and were proved to be 100% correct (as well as very articulate)

So imagine a business projection which was out by these enormous margins and where those making the projections were contemptuously dismissive of the genuine experts at the coal face?

Categories: Uncategorized

Carillion. My quotes in Accountingweb

Delighted to be approached by the leading accountancy website for comments on the Carillion case. All triggered by my blogpost yesterday

I probably will not win any friends at KPMG but thats of little concern to me. Hopefully other readers will recognise that firm views represent a commitment to ethical behaviour. Its a good piece by Mark Taylor, so do please read

And talking of KPMG, we hear today that the partner responsible for Carillion has claimed he “knew nothing” of the fraudulent practice and that he “was let down” by his “junior” staff

Some might say it would be rather unusual for junior staff to take such an initiative without approval from up the chain.

Categories: Uncategorized

An invoice financier uses the wrong approach?

I will not name the lender but they are high profile and I would also suggest that they are not the only lender who shoot themselves in the foot with this particular practice but references to this lender comes up time and again

The scenario is when a client approaches a lender directly. As we all know, charging can vary enormously in invoice financing and quotes will often be geared towards what the lender believes they can “get away with”. Having said that some lenders are more realistic than others but it goes without saying that the input of a strong experienced broker (yes, I do mean myself) is near enough essential

The client receives a quote from the lender and it is astronomical. Often this isn’t just in terms of base price but also extended term of contract and in this lenders case, extremely expensive credit insurance. The client rejects and then approaches a broker, as they should do

The broker suggests that they could negotiate down the lenders pricing but there are other options.

The client’s response? Two words and “If they cant quote competitively in the first place then we don’t want to know”

Why so negative? The key here is respect. The client feels that the lender was obviously “taking the piss” and thats somewhat insulting. It also doesn’t help the lenders name in the market too

Categories: Uncategorized

Carillion. Auditors admit fraud

This is as damning as it gets and one has to wonder whether a fine is sufficient punishment

Surely there is no way back from the actual forgery of documents?

The guilt has been admitted and i believe there should be punishment at two levels.

Firstly the firm should lose its licence to practice. Yes thats severe but malpractice at this level in many other professions would result in similar sanctions and it would serve as a warning. Too often firms have been blithely escaping adequate punishment for these practices. The punishment is inadequate because it keeps on occurring

Secondly the direct participants in the forgery should face criminal proceedings. Clearly there has to be a provision within the law to do so and im unsure whether this exists but I would imagine that in certain economies (the USA springs to mind) that would be the sanction

Too harsh?

No. Ask the unsecured creditors, credit insurers and lenders who were completely conned by these fraudsters

Categories: Uncategorized

Carillion fall out

To most people, auditing is not the most glamorous or exciting of professions and because of that, bad practice or actual malpractice tends to drift under the radar

Carillion is a case in point. Its not a story which is going to find its way out of the financial pages and there is also the element of what’s done is done, so credit to the Guardian for running this excellent short piece. KPMG could be facing a fine of £1billion

As I have stated a few times before, the audit profession is a dismal cartel which drastically requires review. Its not excessive to state that many relationships with clients were borderline corrupt. How else can some of the extraordinary “oversights” be explained?

This hit everyone. Lack of faith in corporate balance sheets and accounting directly damage direct lenders such as unsecured creditors (always the hardest hit) and banks but it also undermines confidence in the while business environment and that affects us all

Categories: Uncategorized

Arena TV. Fraud and its effect on asset financing

It is probably not too early to state that Arena TV’s collapse is riddled with fraud. Considerable lending was sourced against equipment (they “owned” 23 outside broadcast units) from a whole variety of lenders, the identities of which I do not have ton hand and probably they would rather not make too public

To quote

A source close to the administration said the collapse was set in motion when an auditor, acting for one of Arena TV’s lenders, attempted to verify serial numbers for company-owned equipment used as security for loans. When the auditor called the equipment suppliers, they were told the serial numbers did not exist.

“It is potentially the biggest fraud of this kind the UK has ever seen,” the source said.

These frauds occur from time to time and given that the banks are the victims, not too many tears will be shed and there are going to be a few heads rolling and in the case of one of the lenders, I wouldn’t be too sad to see that

I am also seeking a very substantial equipment finance lend from the lender in question and after initial enthusiasm, they have since been acting in a very high handed manner with my client. This comes back to one of the most irritating characteristics of the finance industry

The underwriter in question has taken the hit but clearly the response is to clamp down on future and current entirely blameless clients.

This is unprofessional in my opinion. Lending criteria should be consistent and if the details of the sec unity weren’t followed through then the lenders only have themselves to blame

Fortunately we have two possibly three alternatives and a potentially very strong high value deal will pass them by

Categories: Uncategorized

Backwards to “work from home”

“Work from home” is a continuing divisive subject and the latest guidelines from HMG have brought it to the fore once again. Being December, its fair to say that the directive might not have much of an immediate impact but how will the future pan out and what are the longer term issues?

Two contrasting points from people in my network have been highlighted in the past week

Firstly lenders are perhaps becoming uneasy about businesses which are too reliant on remote working. Rightly in my opinion, they are wary of the ability of such a business to truly work as a unit and also be in a position to grow. The dynamism is lost and for this very reason, I understand that underwriters at at least one bank are writing down the ratings of businesses lost in what the consider to be the drift of constant WFH. I tend to agree with their assessment

A totally different issue is one raised by a valued friend in a high quality professional services organisation and one I hadn’t considered enough. It’s a point that also demonstrates the disconnect between the young and the experienced on this issue and also between those who believe they can manage people and those that can. The issue is one of confidence. My contact has found that junior staff are finding that they are often losing confidence working in isolation and this is something I can appreciate having managed many teams in my career. It is assumed that the office presence is solely so that the management can check that their staff are actually working but thats really only a fraction of the story. At any stage of a career but especially in your early days, endorsement is essential for building confidence and this can only be achieved by managers being a genuinely sympathetic presence. Presence being the key word here

WFH is here to stay but I strongly believe it should be the exception in the working week rather than the rule. A rudderless business with low morale is the likely alternative

Categories: Uncategorized

Business recovery loan changes

Better late than never, here is a summary of the changes for the extended BRL

Clearly the lending is gradually being scaled back and I sense that we will not see an extension beyond the end of june

At Autumn Budget 2021, the government announced that the Recovery Loan Scheme will be extended by six months to 30 June 2022.

From 1 January 2022, the following changes will come into force:

  • The scheme will only be open to small and medium sized enterprises (turnover less than £45 million)
  • The maximum amount of finance available will be £2 million per business (maximum amount per Group is limited to £6 million)
  • The guarantee coverage that the government will provide to lenders will be reduced to 70%
  • These changes will apply to all offers made from 1 January 2022

Categories: Uncategorized

MBI and MBO. The differences and lender’s perspectives

An amusing cartoon and one that would resonate with many lenders, which is a subject I will come onto in a future post. For now this piece is about the difference between a MBO and a MBI

I expect many of you will be aware of this description.

A management buyout (MBO) is a purchase by the firm’s management team. A management buy-in (MBI) is when, on a change of ownership, external management is introduced to supplement or replace the existing management team. … External management may be introduced to add skillsets that the existing management team may lack

Im finding myself dealing with an increasing number of leads to source financing for these transactions and whilst it is a active market at the present time (largely assisted by the HMG leadings schemes), there is a marked preference by lenders for MBOs over MBIs

This is understandable but is it always correct? Can it be assumed that existing management is as skilled at strategically placing the business as the day to day running? Two very different skill sets of course and can it always be assumed that they will manage successfully as a team without the previous leadership?

The advantage of an MBI is that the new owners will have an outsiders view of where improvements can be made. Many of us have experience of taking new positions and be somewhat aghast at the standard of existing work practices and systems. I recall my role as an effective outsider in the rather too cosy advertising industry and being stunned at the decrepitude the IT and accounting systems the industry was relying on.

The other side of the coin is that the buyer may have a worrying lack of experience in the sector into which they are buying and for that reason alone, lenders do put a premium on the buyers CV. Not a stance that anyone could seriously argue with of course

The actual personality of the proposed owner is also key. Thats something which is obviously very subjective but some people can be envisaged running. business and others cannot. M<an management is the most essential element and also the area that causes the most failure

I have learnt much about this process and the key to relationship building between all parties in a transaction that has a lot of moving parts. From my experience im finding that im also better placed to offer advice too. It is certainly a rewarding and stimulating process but also one that requires strong management

Categories: Uncategorized

Invoice financiers. The future is Benelux?

Whatever your views on Brexit (and mine have always been middling), there is no doubt that a consequence has been that SMEs are increasingly looking to set up subsidiaries within the EU to manage certain transactions. No one can be unaware of the difficulties still faced by smaller exporters but various elements of bureaucracy are also hampering certain other industries, even within the service sector

So what’s the impact on invoice financiers?

One of my largest current leads is developing a offshoot in Amsterdam and is seeking a facility which will cover both companies. The lender has to be able to fund the Dutch entity.

At present I have three lenders in mind although one has been very distant and quiet in the market in recent times and that makes it a very limited field. On the other hand, these lenders hold a significant advantage in such scenarios which I suspect we will be seeing this more frequently

The other question is why the Netherlands? In truth im told that Belgium is also popular and I would suspect that maybe Denmark would be as well, whereas France was described as a “nightmare” and we all know that Germany is notoriously restrictive. Also the Netherlands is possibly the EU state with the closest business culture to our own with then possible exception. of Ireland. It may also be that speed of implementing new companies could give the Benelux nations an advantage over Ireland

Either way, this is an area that Invoice financiers are probably going to have to consider and maybe a few Business Development managers might have to brace themselves for relocation to Amsterdam

It could be a lot worse

Categories: Uncategorized