Tell the truth. You will always be found out

Last week I had an MBI prospect. These can be tricky so I send a brief questionnaire before proceeding. One of the questions is, “why do you want to but this business?”

The answer was “to bolt on too my other businesses. It would be a perfect fit”

The target business is a £5m turnover furniture manufacturer

I had serious doubts about my contact and asked him to tell me about his “other businesses”. He went quiet. I said can you just send me their filed accounts

The answer was something like “there aren’t any, I just have an e-commerce business”

He has an Ebay account. Or at least thats all I can assume it is

Aside from the fact that “bolting on” a large furniture manufacturer to an eBay account isn’t a merger that will trouble the Mergers and Acquisitions Authorities, the whole premise is ridiculous

If he had been honest from the start, then fine. We can work around that (although the deal looks impossible to me) but the lying just simply drains any interest from me. I frankly can’t be bothered with him

Further down the line, he will have to meet lenders. Rightly lenders take the view that its one lie and out

And so do I

This will be interesting..

I have refrained from expressing my opinions on Vashi (Diamond manufacturers ltd) and their collapse but suffice to say that a look at their filed accounts and the record of their subsequent issues with creditors claims, demonstrated an alarming picture

Why was this? Anyone looking at the last file accounts now would see a healthy picture and as ever certain credit agencies actually gave the business a good rating.

The key with credit assessment is to look beyond the numbers. This works both ways, with filed accounts sometime not demonstrating a genuinely healthy outlook but when opposite is true, there are certain signals which should cause alarm or simply don’t weigh up

There has been a lot of talk about the quality of audits at corporate level lately and rightly so, but it’s also worth recalling the use of barely visible audit firms by Gupta before his conglomerates collapse. Read into that what you will

I can say a lot more and I believe this whole business will expand well beyond the liquidators remit.

We will be hearing a lot more

Avoid these brokers.

Talking today to one of the relatively rare brokers in the market who is professional and trustworthy, he told me a charming story about one of the “online brokers” who unfortunately I cannot name but from whom a lesson can be learnt

This client approached this broker for an invoice financing arrangement. The resulting deal wasn’t appealing and the client decided not to go ahead. That in itself is probably not a surprise given that certain brokers will source the most expensive (because of commission arrangement) deal rather than the most competitive

The response?

The broker has hit the client with a bill for £7000 for “lost revenue”

Now this may be part of the agreement but it is fundamentally unethical and clearly wasnt made clear to the client in advance

Personally I never charge may client for anything other than agreed consultancy time or in certain circumstances, providing lenders to force a readjustment of terms within the current arrangement. And that is rigorously agreed in advance

Such an approach is obviously good business sense too as well as the satisfaction of knowing you have done your best for the client. Word of mouth and reputation is vital

Lets hope these “online brokers” reap what they sow. And soon

A snake in the office

in my previous post, I highlighted the tiresome new trend for “dogs in the office” and I’m now wondering where the limits will be. An American Bully dog straining at the leash whilst people are actually trying to work? And in fairness it should perhaps of course be extended to other creatures. Im thinking of getting a pet elephant.

But how about a snake?

When I worked in advertising as senior creative regularly bought in his pet snake and walked around with it curled delicately around his shoulders. In fact it was rather beautiful and unlike dogs didn’t defecate here there and everywhere or bother anyone who had no particular liking for their company

The photo here is of the very beautiful but highly dangerous king cobra. Not perhaps the snake to bring to the office because they can immediately dispose of other creatures with one bite.

Come to think of it…

Are the Carillion fines enough?

KPMG have been fined a further £21M on top of last years £14m for failures during their “auditing” of Carillion. Large sums certainly but are they sufficient to deter future malpractice?

This is not a particular dig at one firm because virtually all the large accountancy firms (with I believe one notable exception) have been guilty. Clearly the controls, such as they were, were not working. It is also fair to say that overall, this firm is probably not the worst culprit and those with a keen eye on such scandals as Patisserie Valerie, will note that one name comes up all too frequently

Auditing is a strange business. Take this

KPMG’s UK chief executive said the FRC’s findings were “damning”. 

“I am very sorry that these failings happened in our firm,” said Jon Holt. “It is clear to me that our audit work on Carillion was very bad, over an extended period. 

“In many areas, some of our former partners and employees simply didn’t do their job properly.”

Only in auditing can you profit from not “doing your job properly”

As for the fines, no they are not enough.

The sanction should be a suspension or even loss of licence. Just as professionals in other disciplines are “struck off” (and often for seemingly relatively trivial matters) then the same should apply to firms that “do not do their jobs properly”

Poland leads the way

This blog generally avoids direct political comment but every now and then a trend might be detected that ultimately affects businesses here and elsewhere. The thread might be tenuous but nationalistic inward looking governments generally find trade to be an anathema and as we have seen by off the record comments by the likes of Trump and Johnson, there is a general under-lying hostility to business

So Poland’s surprise rejection of the PIS nationalistic “populist” party can be seen as possibly the start of a welcome trend

Im also reading a superb history of the conservative movement in the USA over the past 100 years. The beauty of this book is that it’s written by an author who’s very much from that political wing but is clear minded enough to detail the trends and factions dispassionately. One trend that cannot be ignored is the drift towards an inward looking “America First” economy which is a near complete reversal from the open free market liberal economies proposed by economies such as Milton Freeman and the “Chicago school”.

The irony now is that the centre left is now attuned to the desires of open markets and employment than the Right and perhaps its no surprise that Rachel Reeves and Kier Starmer are winning the minds of UK businesses in the face of the likes of Braverman

Bank “spies on business owners personal health”

Not surprisingly directly connected to the notorious (and some would say vile) Global Restructuring Group. There is no need for me to comment further

Full story here but here are some highlights

A “tracing agent” convicted of illegally obtaining personal information of bank customers has alleged that NatWest instructed him to report on debtors’ health conditions during the scandal at GRG.

Yuk

Isaacs claimed he worked “extensively” for GRG, which was found by a regulatory inquiry to have mistreated thousands of small and medium companies. He claims he was asked to look into borrowers’ health for the first time in his career by the unit. The bank declined to answer questions about this.

But maybe credit to the bank for..

In June 2015, the bank had suspended Isaacs and all other third-party tracing agents from new engagements pending a review

Perhaps not

It terminated DSS’s contract in March 2016. RBS asked Isaacs to finish months’ worth of work investigating customers and guarantors after it reported its concerns to the ICO, and appears to have paid him for these jobs

And a fair point?

Isaacs said: “The bank was not required to tell me I was under investigation but surely they were not supposed to encourage me to keep investigating their customers. I’ve been fined under the proceeds of crime. What about the bank who paid me? And what about the recoveries my work helped generate? The ICO has gone after the little guy because that was an easy win.”

Dogs in offices? No thanks..

Not everyone is a dog lover.

Ive recently joined an excellent shared office facility which has one drawback. Its “dog friendly”. Thats fine if they don’t bother anyone other than the owner but that isn’t always the case

A couples of weeks ago, I was quietly working when I felt something crawling around my leg. It felt like a rat frankly and when I looked down it was some small breed of dog. Turned around and asked the owner to deal with this and thats fine but 10 minutes later the same thing happened. A very abject apology followed

I was close to then telling the owner that if happens a third time, its neck will be wrung before being thrown onto her desk. I was firm and made my point which resulted in hostile stares and looks returned for the rest of the day

Of course dog lovers will stick to their assumption that everyone adores their animals but its an arrogant assumption. We don’t (I love cats myself) but more seriously, certain cultures have a genuine aversion to the animals and that should be respected.

To a muslim its akin to having a rat crawling over you and would that be acceptable in an office?

Labour to tackle Covid “fraud”. About time too

Few would deny that Rachel Reeves is likely to be chancellor within a year and quite probably a very capable one too. She’s impressed many.

Although this is a sweeping policy, it is most certainly welcome. We are all aware of the manifold frauds perpetuated during Covid and many of those reading this blog will know exactly where to look in the case of CBILs loans and Bouncebacks. I suspect (and hope) that some of the less than ethical Insolvency Practitioners are going to have a few sleepless nights.

For all Sunak’s technocratic skills, the controls surrounding these loans (none existent in the case of Bouncebacks) were startlingly naive. The accusation that in his rarified world he is out of touch with the day to day machinations of the business world firmly stick

Financing Equipment. What you need to know

After Debtors, equipment is the simplest of the assets on the balance sheet to finance. Many lenders offer facilities to finance equipment alongside other asset finance but there are a handful of specialists too who are very competitive. Overall rates are pretty decent across the market

Thats the easy part but for a prospective borrower, there are factors to be aware of.

1. The type of equipment is vital. Generally speaking, the heavier it is with relatively low depreciation, the easier it is to finance and up to 80% can be available. Think JCB diggers, Heidelberg printers and heavy duty machine tooling items. However easily movable items that cannot be easily traced are a problem. IT equipment is very difficult because of fast depreciation and motor vehicles can be mixed.
2. Even then it is hard to be certain. I had an instance where a piece of machinery in car manufacturing would be financed if one brand but not another. This was repeated across all the lenders although I was struggling to get an answer as to why
3. The value on the balance sheet sadly probably not reflect the valuation, which will be based on the price on assumed quick sale within 90 days.
4. A valuation will cost and no financing will be available until the valuation is sourced and paid for. Payment will almost certainly have to be in advance Valuers are generally very busy and lead times can be an issue
5. However a “desktop” valuation can be sourced by myself for an indication. I will need to be aware of the nature of the whole requirement and how serious the prospect is because these valuations are effectively asking for favours from lenders.
6. When supplying details, the fixed asset register can be the source but will need really thorough details. That means serial numbers, dates of purchase etc. Last week I was sent a fixed asset register with the actual details the items blanked out. Just supposed values. Absurd
7. Due to the notorious ActiveTV fraud, lenders are being ultra cautious with the detail. It was extraordinary how so many lenders were conned and it does have an element of black humour about it but ultimately borrowers are paying the price
8. As a rule. items valued at less than 10K are a problem. There is financing available for “soft assets” (which are lower value items which are less traceable) in certain cases, but its expensive and will need to be backed by strong guarantees
9. I am bound to suggest this, but using a broker who knows the market (myself of course) will open doors and save a lot of frustrations. Lots of lenders claim to finance equipment but there are often lots of strings attached which will not always initially be made clear. Appetite and responsiveness varies considerably