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Insolvencies on the rise. But should we be surprised?
Research by credit insurers has predicted that insolvencies will soon be reaching “pre pandemic levels”
Business insolvencies will rise by 37 per cent this year, Allianz Trade, a credit insurer, predicted. It cited as the main causes the withdrawal of Covid support schemes, rising commodity prices, supply chain problems, the fallout from Russia’s invasion of Ukraine and the “lagging effects” of Brexit.
Im not sure this will surprise anyone and also we have a experienced a significant reshaping of the economy because of changing consumer and work habits. The work from home mania is clearly going to have an impact on many businesses but also there are signals that certain areas of discretionary entertainment spending are down. On the radio this morning but was said that the summer Festivals are down in bookings and an area that I know well, horse racing. has been hit by quite substantial drops in attendances. Im noticing that certain theatre tickets (not the west end mainstream) are a little easier to obtain too. Many will blame the economy but I sense its down to habit as much as anything else
Its going to be a bumpy ride but high insolvencies are not purely driven by economic factors
Carillion KPMG fine. Appropriate?
KPMG have been fined over £14m for their role in the Carillion collapse and there is little that needs to be added in respect of yet another failure of the audit profession. The fine is substantial but nothing compared with the potential impact of the liquidators claim for £1.3 billion in respect fo creditors. If thats successful, then we might actually see audits carried correctly in the future
The present fine is not going to cripple KPMG but a more interesting question might be who is the recipient and who should be the recipients. The answer is unlikely to please everyone, especially unsecured creditors.
The Institute of Chartered accountants is the answer
I have absolutely nothing against the Institute who carry out much fine work but I cannot imagine that this is going to well received by those directly affected by their profession’s behaviour
*** and as the national press takes the lead from my blog, there is this damning comment piece in The Times today
SME lending at an “all time low”
This piece on the BBC website should generate a response from the the Treasury but I will not hold my breath
The Federation of Small Businesses have had their say and the facts are within the news item but for me there are two contrasting points to take from this
It could be that the high failure rate is due to heavily increased demand for lending and it would perhaps be useful to see stats proving this one way or another. The demand could be driven by economic circumstances but also due to businesses “opening up”: after the pandemic but this could also be mitigated by the fact that many had already taken CBILS and especially Bouncebacks loans
The alternative view turns the spotlight on the banks. The Business Recovery loan (which superseded the CBILs lending) gave banks a degree of security for their lending and yet its barely been promoted. I know from experience that certain lenders (and this has included Fintechs as well as the big four) have found the most tenuous and sometimes laughable reasons for refusal
The lending scheme is seemingly heading in the same direction as the EFG loans which the banks could barely muster any interest in and if this is the case , then the treasury should be asking questions
What is a “Business Broker”?
Partly due to the pandemic, there has been an explosion of owners looking to sell as well as potential owners looking to buy businesses. Largely this is down to people taking lifestyle decisions rather than economic factors although clearly that plays a part. This isn’t simply down to those looking to retire (although the pandemic has accelerated that process for huge numbers) but also those wishing to ditch the corporate lifestyle and live the dream of running their own enterprise. Who can blame them?
This has of course been a boon for the ‘Business Brokers’ who promise to assist in finding potential buyers. Unfortunately, much like my sector of Finance Brokers, the quality is very mixed
The good news is that there are some excellent people out there. I can certainly recommend one who values businesses in a professional manner and acts as a conduit rather than a salesman. He even runs seminars on this subject which are very illuminating but he’s an exception rather than the rule
I handle quite a few MBIs and have to occasionally deal with brokers and some are frankly dreadful. For some reason many appear to be based in Bolton but I hasten to add that thats not the reason for the unprofessionalism. I will avoid going on a rant about previous experiences but would highlight a few factors potential customers should be aware of
Firstly there are the ‘upfront fees’. These are reasonable if you know what you are getting and the firm has a decent reputation but otherwise you could be paying £5k for a simple ad on the internet. They have already generated decent income for little work. You really have to question and demand details of how they intend to promote the business sale
Before engaging I would ask them how they value the business. One “broker” I knew said he simply did a 2 x EBITDA multiple for every client. This is madness and I will explain valuations a little more on a future post, but if the answers are hazy in terms of the process, the advice is to avoid
Be very careful when committing to the agreement. Many will have clauses demanding commission if you find a buyer which the broker has had no contact with regardless of the brokers involvement. You will be committed to a hefty fee for something which the broker had zero input and ive seen these clause imposed for up to five years
The worst clause I saw was one where the business broker guaranteed to return a third of the initial fee if broke the agreement. A third. I suggested to the broker, who was representing. franchise, that this is liable to actual drive away potential clients who bother to read the agreement. Aside from being unenforceable, it simply looks seedy
But I do hasten to add that a professional broker who values his reputation and service can be extremely valuable in what is difficult transaction.
Selling a business is difficult and time consuming but the key advice is to be careful and take the appropriate steps. As ever I am always here to assist
Home delivery slump
A number of financial press articles have focused on the relative slump in home deliveries since the end of the pandemic. This was cover in an excellent piece in The Times yesterday but accessible is this report on Boo Hoo’s share slump
Naturally there was going to be a drop off once consumers started returning to the high street but what has surprised markets is the extent, thus the share price falls
Rhetorically a very good client of mine based right next to Lakeside Thurrock, told me a couple of months back that they had never seen the complex so busy in 20 years. I thought at the time there was something in the air
This doesn’t of course mean that the on-line retailers are in difficulties but it would appear that certain sections are being harder hit than others with fashion being at the forefront. Some online retailers are superb with Amazon offering remarkable customer service and Wiggle being excellent for cyclists such as myself
But why the surprising surge on the high street?
The simple fact is that online shopping will never replace the real thing. Browsing fridges and some menswear yesterday around John Lewis was a pleasure, not a chore. Heavy goods are very hard to assess online and clothes even worse. And what a pain it is when you have to return the said goods as we so often do
Also we all have different leisure activities. Many will sneer but many do just love shopping and why is trawling around the Lakeside complex any different to browsing Borough Market? People just like to get out. Markets have-not always grasped this assuming that convenience and price is all that drive consumers and thats a typical out of touch economist’s mistake. People have far more complex thankfully. They also love interaction and advice. Its an overall experience and quite natural
Personally I think this is great news. A future of fine stores such as John Lewis reduced to a handful of hollowed out locations with boarded up high streets is pretty horrible. The retailers will have a very tough year ahead with so many external factors thrown in. the mix but they can take heart from the fact that they are more loved than maybe they imagined
Debtors promises. What are they worth?
Many years ago, my first and best manager, taught me the value of “facts” when it came to Credit Management. I can see the table being thumped now and it would on the face of it appear to be a simple and straightforward requirement but one that is often overlooked
When a client makes promise of payment, it’s of no use whatsoever if they details are vague and the promise is open ended. In fact that can be worse than no commitment at all. They can in fact be testing how easy it is to kick your demand down the road. The key is to obtain the “facts”. Date of payment, which invoices and total amount. Easy? Yes, but so often overlooked
Even better is to receive that commitment by email. It is not often known that such a communication is legally binding. I wouldn’t suggest sending out a Statutory Demand for a payment thats a day late but you could.
Knowing your client is vital too. Simply put, the larger the business, the more credence can be given. In truth very few debtors will give all the the details requested and immediately let you down and its pretty unlikely in the case of a enterprise where your debt is fairly insignificant in the overall scheme of things (although it can be a major red flag if it does occur).
And make it your job to get that detail. Don’t get fobbed off with some vague promise or simply lies fobbing off from the sales team. With some exceptions, they are the absolute worst in these situations
Simple guidelines but experience is also key and vital as is obtaining the right information in detail from precisely the right source
Greensil roped into fraud investigation
Quite how deeply this will involve Greensil and by association. David Cameron, is yet to be seen but it would appear that the investigation into Gupta is extending its reach beyond simply the basic financing. There are now references to “money laundering” which did pass me by first time around
Previous posts have attempted to indicate why these alleged fraudulent issues run right through the relationship and naturally enough im not going to speculate in detail but this is certainly going to be one to watch
Cpcmcredit Blog 