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.

Successful business leaders have all the information they need to make good decisions…Do You?

Saturday, August 29, 2009

Is the recession over? (Part 2)

My last post asked the question - is the recession over?

Yesterday, my good friend and long time business associate Keith Steven of KSA Company Rescue (Keith is a leading authority on company rescue mechanisms, especially the Company Voluntary Arrangement "CVA") posted the following in his blog which I could not agree more with:

Double dip recession is certainty, not just for UK

"The shocking business investment numbers released yesterday give the lie to the green shoots myth for business.

Investment by businesses contracted on a quarter-on-quarter basis by its largest amount since 1985 and its looks like the annual decline this year is likely to be about 18 per cent — the biggest fall, outside wartime, for more than a century.

With that backdrop I cannot see a big recovery or even a small recovery in the economy. We have been saying for some time that companies, to survive the recession, have been cutting costs, reducing employment and now its clear they have also cut investment.

With 180,000 companies not paying PAYE and VAT on time (to survive cash flow crises) it is clear that SME businesses are having to "hunker down" for worse times ahead, by cutting investment, costs and employment.

Alongside consumer tax rises, next year we will see the new Government cut costs, public sector employment and investment too. Smart boards are already planning for that and cutting their cloth to fit. Coupled with falling investment as employment falls, less money will be spent by the consumer, so service sector and retailers in particular will see growth grind to a halt again after a recent rise.

So will this lead to the double dip recession or W shaped recession. Nothing is ever certain but that is what I am thinking as each month goes by.

So what of other countries? The rise in GDP in Japan is interesting. Much of this is probably restocking by companies, remember Japanese manufacturing collapsed last year. So good news for Japan ahead? NO.

This week the worlds largest car manufacturer, Toyota, decided to close a US plant and mothball two production lines (one in Britain), this is the first time in its history it has taken such actions. Does the board of Toyota see growth ahead?

Fujitsu announced 1,200 job losses in the UK . This after shorter working hours did not work in the UK. Falling revenues were to blame. No growth there then.

France and Germany also announced growth in Q2 of 2009. I also think this was driven by restocking and the bringing forward of car sales for example. Ambrose Evans-Pritchard of the Telegraph's recent article also points out that European credit contracted recently (ie did not grow).

We should not succumb to optimism that everything has been overcome. The whole world is in recession together and nobody alone can export their way out of the downturn. The recovery cannot last unless there is rise in global demand, and jobs are created, and there is no sign of that.

The rebound in Germany and France is not sustainable. The state has stepped in to compensate for the Private sector. As long as economic growth relies on the state, you cannot talk about durable recovery.

So lets wait and see, but it looks like a fall in GDP is ahead and it will be late 2010 before meaningful recovery in the major economies and then I think growth will be very sluggish."

I was listening to a commentator on the television this week who pointed out that there were no signs anywhere (in the world) that any "recovery" was sustainable. He also highlighted the lack of consumer demand and the restocking issue.

The reality is that any green shoots are probably just weeds, since small businesses are still suffering and judging by Keith's comments not investing either (how can they when credit is so tight!) and are therefore far from out of their problems.

There needs to be some substantial movement in the smaller business sector before we will see any positive and real change.

In the meanwhile if businesses are to at the very least survive, if not thrive, through this they need to wake up to the realities of the world we are now living in and adjust accordingly. Just battening down the hatches is not the answer. Businesses need to reassess their plans, look at the financial positions, and revise them to take account of the new reality and make something positive from it. Many great businesses were founded in recessionary times - make yours one of the ones to gain from the current climate!

Wednesday, August 26, 2009

Is the recession over?

Increasingly in recent days there has been more and more items in the media about the recession being over, or nearly so? It's almost as though talking the economy down is boring now and they need to talk it up.

But is there any substance to it?

The most recent one I have seen is an item on the BBC news website this week based on an index of business confidence run by the Institute of Chartered Accountants in England and Wales (ICAEW) saying the recession is at an end and we will see 0.5% growth in the third quarter in the UK!

Then you have news that countries like France and Germany are out of recession and various other indicators showing increases in demand - even in the motor industry!

This also leads to thoughts about the shape of the recession perhaps? There was much talk about "U" shape, "L" shape and even a dead cat bounce which always makes me smile! Will we get a double fall? Will the economy ever recover to where it was? And how long will it take? It certainly needs to grow substantially if we are ever going to get the national debt down!

I can't say I'm convinced by all this talk of being out of the woods. Personally I feel we are a long way from being out of trouble. I do not want to be the merchant of doom, far from it, but we must be realistic! However, that said, if we can get some feel good factor back into peoples thinking then it can only be positive and will in itself bring good news!

From what we see at Insight Associates many smaller businesses (which are after all the bulk of the UK employers!) are still suffering, and in some cases suffering badly. Unemployment is still rising (a strong lag indicator) and will probably still do so for some considerable time yet - with all it's knock on effects, and credit is still in very short supply.

Someone mentioned to me the other day that in the last true recession of the early nineties, unemployment did not peak until 1995!! I have not checked that out - but that is some lag!

To my mind we will not see any sustainable improvement in the fortunes of smaller businesses in the UK until banks and other lending institutions get sensible with their lending criteria again (because they are far from it at the moment) and credit insurance also sorts itself out. In the meanwhile businesses need to get much better at managing their scare cash resources and focus on this critical area which so many are still failing to do!

Saturday, August 15, 2009

Are the banks causing businesses to fail?

Comments from the Forum of Private Business (FPB) this week are suggesting that the banks general reluctance to lend is causing significant business failures.

The second quarter of 2009 saw a 39.1% rise in compulsory and voluntary liquidations of companies in England and Wales, and at the same time the Bank of England reported that lending to small businesses had dropped by a staggering £14.7bn in the same period! Research by the FPB suggests that businesses demand for finance is not being met by supply and in fact the banks are continuing to refuse to support even apparently good businesses as they perceive too high a risk.

Even when funding is available it is becoming increasingly expensive with margins of six percentage points and above over the base rate now becoming almost the norm.

Some would suggest that the banks are just taking a sensible line after perhaps some years of being a little reckless, and the businesses failing to get support are perhaps simply not viable in the first place! However whilst there may be instances of this, it is more likely to be the case that the businesses concerned just need help to get them through a difficult period. Many current leaders of smaller enterprises have never managed them through periods like this before, and need help support and guidance not a ruthless approach. That has certainly been more often than not our experience in recent months.

Let's see a return to sensible relationship banking and local managers being empowered to make decisions on the ground rather than the box ticking mentality that seems to prevail now.

It is also interesting to note the increasing statistics that seem to appearing recently about how badly all of the various Government support schemes appear to be working! With the notable exception of the Business Payment Support Service which I talked about again recently, all of them seemed to be failing to deliver. Indeed Mark Prisk MP, Shadow Spokesman for Business & Enterprise who spoke at our Bishops Stortford Breakfast Club last week said that the £2.3bn Automotive Assistance Programme had so far not given a single pound to the sector!

Whatever your view, the reality is businesses need help through these difficult times. Both in terms of real cash, management guidance and financial management support! The consequences of not getting this right could be disastrous.

Saturday, August 01, 2009

Resolving turnaround issues ....

Another case study, this time with a client, Cahro Limited, that inintially turned to us for turnaround advice. Not only did we deliever that, but also took over full responsibility for the accounting and financial management functions with our Outsourced Finance Department.


Braintree-based consultancy firm cahro was established in 1999, the brainchild of Tim and Wilhelmina Edwards. With their extensive experience in training and human resource management, the couple identified a need for good quality training and consultancy services to, amongst others, the healthcare profession.

The company quickly grew as demand for their services increased. cahro, which stands for Consultancy and Human Resource Outsourcing, developed strong links with bodies such as the Learning and Skills Council, Institute of Leadership and Management and Edexcel. Initially the company was home-based but due to success and growth, it acquired its first office premises in Braintree. Continued success over the following years resulted in cahro being voted Training Provider of the Year 2008 by the Learning and Skills Council as part of the EWBTC consortium.

Financial Difficulties

After 10 years of successful trading, financial difficulties hit the company in 2006. Due to changes and re-structuring within the Learning and Skills Council, severe delays occurred with cash-flow, causing major problems. Managing Director, Tim turned to business acquaintance Garry Mumford, owner of Stansted-based turnaround and financial management specialist, Insight Associates.
Together, Tim and Garry identified the main problem areas within the business. They recognised that the distribution of staff was uneven with many staff in the wrong geographical areas and too few in the required areas. Poor middle management and inadequate control added to the problems and the company was suffering from under capitalisation.

As Tim Edwards recalls:

“Following the analysis of the business, I disposed of virtually the whole of the management team, including one director due to poor performance. Garry and his team at Insight Associates ‘cleansed’ the company from a financial perspective and gave me tangible, relevant and quantitative information to make sound business judgements. This has continued to be a successful strategy.”

The Insight approach in a turnaround situation is to Analyse, Plan and Execute. From Insight’s analysis of the business and its thorough review process, Garry was able to advise that the best solution was to propose to creditors the little used Company Voluntary Arrangement (CVA) mechanism, which allowed the company to trade as normal, eased cash-flow pressures and cut costs.

Garry Mumford explains:

“Once we have identified the problems within a company, we can quickly work out the best solution and devise a plan of action. Tough decisions often need to be made and it can be a painful experience for a business owner. However, as in cahro’s case, once a plan is in place, the company can begin to get back on track, through organised financial planning and tight cash management. This gives the directors a renewed sense of real control over the business and optimism for future trading.”

Clearly, Insight’s extensive experience in financial management issues has revitalised the business and given cahro a brighter outlook for the future. However, the road to recovery isn’t necessarily an easy one, as Tim Edwards reflects:

“As a business owner, I found the first three months of the process very concerning and stressful. By six months I had a viable plan in place, by nine months I had my finger on the button, and by 12 months the company was back on track on a sound trading platform. The recovery process has to be a partnership between the company and Insight Associates. Decisions are tough but have to be taken. I can now see a bright future of trading out of a difficult economic environment. Also, I can now sleep at night!”

There are many reasons why a company may end up in financial distress and in the current economic downturn, trading conditions are proving difficult for businesses across all sectors. For business that may be experiencing the first signs of financial trouble it’s important to remember that the sooner expert help is sought, the more likely it is that a solution can be found to get the business back on track. Insight’s experience and expertise within this field has rescued many businesses, like cahro, from financial ruin. Furthermore, through establishing solid financial foundations and tight cash management, Insight’s expert help can rejuvenate a business and provide firm foundations for future prosperity.

How outsourcing can really add value ...

A recently completed case study on our client Shadowfax Technology Limited.

His passion for delivering quality IT support to clients drove Adam Pedder, together with a business partner, to set up his own business in 1990. Shadowfax provides IT support services for small and medium sized businesses. Adam is a Microsoft Certified Systems Engineer and the company has achieved MS Gold Certified Partner status; recognition of its expertise in providing successful IT solutions to small businesses. The pair was joined by Vanessa Pedder, now a director, in 2006.

Accounting Difficulties
After several years of successful trading, Adam’s business partner, who had previously undertaken most of the accounting and financial management duties, left the company, and this created a problem. From only being involved part-time in processing invoices, Vanessa was now faced with having to do all the accounting, cash management, payroll, tax, and the like, tasks that – by her own admission – she found daunting. Furthermore, it was clear that Shadowfax needed guidance on their general financial management and accounting due to their growth, as well as longer term strategic direction. As Adam and Vanessa were already acquainted with and impressed by Insight Associates, it seemed an obvious choice to turn to them for help

The Outsourced Solution
Insight’s considerable experience in helping businesses through its own turnkey outsourcing division, The Outsourced Finance Department, meant that it was able to grasp the issues and problems facing Shadowfax immediately. As well as taking care of all the day-to-day accounting, The Outsourced Finance Department can help with strategic input by acting in a virtual Finance Director capacity. The Outsourced Finance Department set to work on taking over the finance function and getting to grips with the bigger picture, as Vanessa explains:

“Insight were fantastic and helped us immensely in the transitional period from doing all the accounting ourselves, to them taking over. In addition to looking after all the routine accounting, they have held our hand all the way through the process of moving across to their platform and even helped to improve the way we do several things.”

The improvements were felt at Shadowfax within a couple of weeks and with a regular contact at the end of the phone to provide help and support, Vanessa was delighted with the progress.

“We are now much better at managing our cashflow, sending out invoices promptly and organising our accounts. Payroll is now managed much better, with holidays recorded and overtime paid correctly. We now feel more confident and able to work towards growing the business for the future. As an additional bonus, Insight Director Garry Mumford introduced a new bank manager who has improved our banking facilities and again made us much more stable as a business.”

As Shadowfax familiarised itself with the new ways of working, the relationship quickly settled down, and Adam and Vanessa can now concentrate on the future of the business. The ongoing relationship remains strong and Vanessa has a Finance Manager at Insight who understands their business and is always available to respond to queries promptly.

“We have monthly meetings with Insight Associates which are never rushed and allow us to clear up queries and mistakes before they hang around too long. In addition they highlight areas where we need to focus and add great value to the business. All in all we consider Insight to be an essential part of our team.”

Deferring tax payments

News this week from HM Revenue and Customs showed that they have now deferred £3.17bn through the Business Payments Support Service!

There have been 177,000 separate arrangements and to date around £2bn has been paid back. Most deals are for three months or less, and as time passes the number of repeat deferrals has increased.

As I have said before, as Government initiatives go this one really works. It is in effect giving short-term (often interest free) overdrafts to businesses and is without a doubt relieving much pain that business may be feeling at present.

We have used it extensively for and with clients over recent months and it is indeed very effective.
There can be no doubt though that the Service is becoming increasingly concerned about repeat deferrals and also abuse of the facility. Are all the businesses that are using it doing it for genuine reasons? - probably not? Compared to most overdraft facilities it is cheap and easy money -why would businesses not use it when there are very few hurdles put in the way.

I personally took quite a grilling earlier this week on behalf of a client when we were looking to defer payment of a quarterly VAT return. It was the third time they had used the service, and each time the quarterly VAT had been repaid before the next quarter became due (sensible if you can afford it!). A lot of questions were asked about what else the Directors had done to try and resolve their cash flow issues. Is this a sign of what is to come?

The Governments challenge will be how (and when) they withdraw the scheme. One thing is for sure they will have to be very careful indeed not to create a bigger problem than the one they have already gone some way to solving. I also hope that they do not rush into it, as there can be little doubt that there are still many businesses hurting out there!
In conversation on Thursday with my good friend and colleague Keith Steven of KSA Group, one of the countries most innovative and leading insolvency experts, he said that he believes that to some degree the facility from HMRC is just putting off the inevitable. It is giving time to businesses but not really solving the fundamental issues which more dramatic action would help with. Knowing Keith I suspect he is right!!

In the meanwhile, if you need the facility, use it! Further details are available from our website, or give me a call on 0800 180 4265 if you would like a confidential no obligation chat!

Insight Associates, Insight House, Riverside Business Park, Stoney Common Road, Stansted Mountfitchet, Essex, CM24 8PL, UK
Tel: +44 (0)1279 647447 Fax: +44 (0)1279 814512
Insight Associates is a trading name of Financial Catalysts Limited. Registered in England and Wales Number: 5670047. Registered Office as above. Disclaimer | Cookies