The Euro according to Blackadder

Baldrick: "What I want to know, Sir is, before there was a Euro there were lots of different types of money that different people used. And now there's only one type of money that the foreign people use. And what I want to know is, how did we get from one state of affairs to the other state of affairs"

Blackadder: "Baldrick. Do you mean, how did the Euro start?"

Baldrick: "Yes Sir"

Blackadder: "Well, you see Baldrick, back in the 1980s there were many different countries all running their own finances and using different types of money. On one side you had the major economies of France, Belgium,Holland and Germany, and on the other, the weaker nations of Spain, Greece, Ireland, Italy and Portugal. They got together and decided that it would be much easier for everyone if they could all use the same money, have one Central Bank, and belong to one large club where everyone would be happy. This meant that there could never be a situation whereby financial meltdown would lead to social unrest, wars and crises".

Baldrick: "But this is sort of a crisis, isn't it Sir?".

Blackadder: "That's right Baldrick. You see, there was only one slight flaw with the plan".

Baldrick: "What was that then, Sir?"

Blackadder: "It was bollocks".

With grateful thanks to Nigel Cook and apologies to Richard Curtis and Ben Elton I suspect!

Is there a safe haven?

One of the very interesting and diverse aspects of our work here at Insight Associates is the huge variation in the fortunes of our clients. At any one time we can be working with businesses which are distressed where we are helping nurse them to health again (often including intensive cash management), and the others doing very well and generating cash.

This has perhaps been even more noticeable in recent years.

It is the second of these areas interestingly that is presenting a challenge at the moment. We have clients who are holding reasonable amounts of cash, generated through profitable trading. They are naturally risk adverse, so want somewhere to hold these funds and also get a reasonable return.

The big four clearing banks have in the main forgotten what it means to pay interest on deposits, with many offering such low rates it is hardly worth their while doing it. There are exceptions but mainly for long term bonds etc.

So, if you want to get any return worth talking about (and we should be looking at the very least keeping up with inflation) then you need to move the funds to other banks and institutions. Most of these are overseas or have significant overseas interests or ownership. Then are you looking at risk?

I have just this week had an interesting exchange with a senior manager with the UK arm of a certain red Spanish bank (an excellent manager incidentally, so this is no reflection on him). This bank are offering very strong rates for short-term deposits, and have been for some time. On the face of it attractive. But what of their exposure to the rather shaky Spanish economy?  They show very compelling statistics and facts about their rating and how the UK is ring-fenced, which yes shows that they would not fall if their parent in Spain fell or had difficulties.

However, I say, banking is based entirely on confidence. No-one can argue that the confidence in the UK bank would not be badly shaken, at best, if things happen in Spain, and regardless of the facts that may well lead to a run on the UK bank. No bank however strong can survive that can it?

So are there any safe havens left?  The financial world is a very uncertain place at the moment.

Double dip recession? What double dip?

I find it all quite bizarre. The Office of National Statistics publishes a number and all of sudden it’s all doom and gloom again. Oh no, we are in recession. Oh no a double dip!  Woe is us!


What a load of nonsense!


Show me some hard evidence that we have been out of recession since the end of 2007?  The reality is we haven’t. Just because the “official statistics” have to show we are negative for two successive quarters to be “technically” in recession, does not miraculously mean that if it is positive – no matter how small – that all is well. Of course it isn’t.


This time around we shrank by 0.3% in the last quarter of 2011, and it seems by 0.2% in the first quarter of 2012. However, when you look deeper, the new number for the past quarter is based is an estimate using only 40% of the data available and subject to two further revisions. So, to add insult to injury all this hype is about an intelligent guess based upon less than half the facts!!

As the graph shows (courtesy of the BBC) with just one exception when we have been positive since the beginning of 2008 it has always been below 1% …not something to write home about.


Until we get sustainable growth (well above the 1% - remember China has been in double figures for years) then the UK, like most main industrialised nations will just keep bumping along the bottom. We need a pick-me-up, an injection of adrenaline to get something moving, and not fill up all the headlines with “oh dear a double dip recession”.


We have been here all too long – nearly five years!  No Government initiatives, no amount of talk, no analysis has moved us on.  And, if we are not careful that is how it will stay for a good while yet unless something changes. Most small businesses, those that employ 97% of the UK non-public employees, are just keeping their heads down waiting for the storm to pass. In the meanwhile they are doing nothing, not innovating, not taking risks, not moving forward. Like a frightened animal they need encouraging out, reassured, incentivised and shown a better option.


I am not entirely sure what the right answer is. Perhaps no-one really knows. But it certainly isn’t nonsense schemes like the new National Loan Guarantee Scheme, which does not do what it says on the tin!  All this appears to be is a scheme to very slightly reduce interest costs, it does not guarantee anything, it does not encourage lending, and it does not encourage the banks to change their attitude towards the propositions they are seeing. We need something that will change the landscape, not play around with it!


So, let’s be serious here. We need the leaders of smaller enterprises to change their behaviour. What is going to make that happen, so we can get real growth and prosperity? Certainly not the media worrying about how many times we have dipped within a sub one percentage point band!

Staying ahead of the pack

With the budget date set for 21st March, now is a good time to think about what it may contain and the implications on your business and your independent wealth.  We often discuss the benefits of cashflow planning and thinking ahead about the financial strategy for your business. 

Nobody can predict what will happen but with the Government’s austerity measures still high on the agenda, one area attracting media attention is ‘tax relief’ – particularly tax relief on pension contributions which do not stimulate the economy.

Our good friends at Richmond House Group provided us with some interesting facts and figures:

Tax relief on pension contributions currently stands at £36.4 billion!

What is more interesting is that Mr David Laws (former chief secretary to the Treasury) wrote a letter to the Chancellor in December 2011 asking what the cost savings of restricting tax relief on pension contributions to 20% on incomes over and above £100,000 p.a. would be? For 2012/2013 the saving would be £3.6bn.

Also on the agenda was how much tax relief allowance would be saved if the current £50,000 level was reduced to £30,000 or £40,000.  This saving could equate to £600m to £1.8bn.

So is this a sign of things to come?  We can’t be certain but, for those thinking of making lump sum payments to their pension, it might be a good time to consider accelerating these to 20th March rather than waiting until 5th April.

Remember forewarned is forearmed!

Millions, Billions and Trillions ...

A guest Blog from our friends at
Independent Banking Consultants 


Since 2008 references to “millions” “billions” and “trillions” have become commonplace; but do we really appreciate how big these numbers are?

In 2008 the collapse of Lehman Brothers signalled the onset of the global financial crisis, which in turn has escalated into the present sovereign debt crisis. Throughout this time references to “billions” and “trillions” have become commonplace in discussions about GDP, bank bailouts, quantitative easing and the like. So just how big are these numbers?

Before we try to put them into context lets first define the numbers themselves. Historically the international definitions of these numbers differed but the following are now the accepted ones:

1,000,000 - One Million (a thousand thousands)

1,000,000,000 - One Billion (a thousand millions)

1,000,000,000,000 - One Trillion (a thousand billions)

The problem is that these numbers are so huge that it is hard for the human brain to comprehend them without adding a frame of reference. And one of the easiest ways to do this is to relate them to a recognised period of time. Take ‘one second’ for example; there are 86,400 seconds in one day.

Therefore a million equates to more than eleven and a half days when measured in seconds.

A billion equates to roughly 31 years and eight months: in other words, if you had started a clock ticking when Margaret Thatcher first became Prime Minister it would only have passed the billion second mark last year!!

And your clock would have taken a staggering 31,709 years to count out a trillion seconds!!!

Putting some recent events in context

If we now apply the same frame of reference to some recent events it really helps to put them into context.

• At the time of writing the UBS rogue trader has cost his (former) employer $2.3 billion – that’s nearly 73 years when measured in seconds, so you would have had to start your clock in 1938, the year before the Second World War started 

• In April Lloyds TSB set aside £3.2 billion to cover the cost of payment protection insurance mis-selling – measured in seconds that equates to over 101 years, so that’s the same as your clock running since 1910 (two years before Titanic sank on her maiden voyage) 

• Recently the cost of separating retail and investment banking was put at £7 billion – that’s 222 years, or back to 1789 (the start of the French Revolution) 

• There is talk of increasing the European Financial Stability Fund to two trillion Euros in order to cover European bailouts and recapitalise its banks – that’s 63,418 years which would take us back to the time of Neanderthal man 

• The USA recently increased its overall debt ceiling to $14.3 trillion – that’s an eye watering 453,438 years!! 

Small numbers are often not as benign as they may seem

So what conclusions should we draw from all this?

Well, you can remember this as a fun thing to entertain your friends with, although there is also a serious side to it that stems from our tendency to overlook the reality behind many numbers – sometimes numbers that can appear quite small and innocuous.

In our world we see this all the time, whether it is borrowers who fail to appreciate the difference that interest rates can make to the overall cost of some loans; or not appreciating the creeping effect of compound interest on the total amounts repayable.

It is always worth taking a reality check with numbers – especially when talking about loans that your business will be responsible for repaying, or for which you might be giving a personal guarantee. Getting the detail right can makes a BIG difference to the end result…

Independent Banking Consultants Ltd

www.independentbankers.co.uk

Love and Loss - Steve Jobs

In amongst all the material being realised this week in the aftermath of the untimely and tragic death of Steve Jobs, founder of Apple, this really hit me. It is so true in everything we do, but in particular business. It is often what makes the difference between success and failure.

Steve Jobs gave this as his second story of his Commencement Address at Stanford University on June 12, 2005.

Love and Loss

I was lucky. I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation - the Macintosh - a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started?

Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn't know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I thought about running away from the valley. But something slowly began to dawn on me - I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT.

I returned to Apple, and the technology we developed at NeXT is at the heart of Apple's current renaissance. And Laurene and I have a wonderful family together.

I'm pretty sure none of this would have happened if I hadn't been fired from Apple.It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers.

Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking.

Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. 

Don't settle.

Steve Jobs
1955-2011

44% of businesses have poor accounting records

Business owners beware – after a very successful pilot scheme HMRC has decided to carry out a further 12,000 business record checks in the current financial year.  Recently established businesses are most likely to be approached and a further 20,000 checks are planned for the next financial year.

Results of the pilot scheme showed that a massive 44% of businesses had issues with their record keeping and 12% had seriously inadequate records and could face penalties of up to £3,000.

For years Insight Associates been extoling the virtues of good record keeping to understand your financial position and to make good business decisions.  From HMRC’s perspective good records are also an indication of how likely they are to receive the correct amount of tax – so it’s in their interest to notice inadequacies.

In brief you should pay particular attention to sales/purchase invoices, receipts, petty cash and general expenses.   We’ve covered many of these topics on the Business Hub Radio show and you can read the articles and listen to our podcasts here

For more in-depth advice or details of our accounts audit procedure contact me, Garry Mumford, directly.