Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

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Thursday, November 06, 2008

Lots of interesting numbers ....

Well they did it! The Monetary Policy Committee (MPC) of the Bank of England rose to the challenge! The markets were crying out for something bold and they got it! At a stroke the base rate in the UK is two thirds of what it was earlier today!! An unprecedented cut in recent times of 1.5 basis points to bring base rates to their lowest level since the 1950's!

What is more, those who should be in the know are suggesting it will go lower still, maybe to around 2%!

Now it is up to the banks to pass on the benefits .... something which has not been happening up until now. In fact we have seen attempts by the banks and asset based lenders to increase margins recently because of the high rates in the wholesale markets.

It is all a huge shift in a very short space of time. Early in the summer some were suggesting rates were going to go up to deal with inflationary pressures! Now it seems the general wisdom is that inflation will fall. You have to be quick on your feet these days to keep up with this!!

Turning to other related numbers ...the rise in small business failures. A recent poll of its members by insolvency trade body R3 showed that they believe failure rates will increase by 41% over 2007 levels in 2009 to reach levels last seen in the early 90's. In addition a recent report in The Telegraph discussed recent aggressive tactics from banks resulting in a 152% increase in receiverships in the last quarter! Receiverships have fallen dramatically since the Enterprise Act of 2002 as banks were prevented from putting the power into new lending, instead using the Administration process. However, it seems where they can the Receivership process has found more favour again as it gives banks more control over their ability to collect out their debt. Worrying trends.

What is the advice to smaller businesses? Well the cost of borrowing may be coming down (quite dramatically), but it is clear that the banks are being very cautious and monitoring their lending books very closely. Make sure you stay close to your bank relationship manager and keep him well informed about your business to give him the reassurance he needs. Then focus on cash generation above all else is the only way you are likely to get cash into your business for the foreseeable future - generate your own!!

Interesting times ....

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