As we move into 2003 the incidence of insolvency
is increasing as business problems emerge. We expect the situation
to deteriorate as the economy slows and increasing costs, particularly
wages, start to bite. If taxes are increased in the April Budget,
as an alternative to curbing Government expenditure, then a significant
downturn is Æon the cardsï.
Care Homes
We have highlighted the problems of this
sector previously and whilst there are some signs of temporary
relief ð modest
increases in state paid fees, and some relaxation in the speed
of implementation of the capex requirements to meet the National
Care Standards ð the underlying trends are not good. The sector
is facing substantial increases in labour costs and we suspect
that low interest rates are masking problems.
With the benefit of a buoyant property market
we have been successful in disposing of a number of Homes at a
price above valuation as a Nursing Home. However, we are starting
to see a change in the attitude of planners to requests to obtain
changes in planning consent, as Local Authorities seek to maintain
levels of accommodation in their areas.
The overall message is that if the medium
plans look unworkable, then it is probably in the clientïs interests
to get out sooner than later.
Construction
This sector has enjoyed a relatively prosperous
period, but spiralling wage costs and a shortage of skilled workers
is starting to hit the bottom line as well as making costing for
work a more exacting requirement.
Those builders with a bias towards house
building and buy to let properties will experience a predicted
slowdown
as the market cools. There are signs that this market is overcooked
and it would seem that developers, in some locations, are starting
to experience difficulty in getting properties away. In cases of
slow demand, contractors will experience a slowing cashflow ð especially
if the developer has a weak balance sheet.
Increased premiums for Employers and Public Liability
Insurance, continues to be a problem in this sector.
Financial Services
IFAïs are experiencing ongoing problems,
either from claims for miss-selling pensions or endowments, or
from difficulty
in getting PI insurance. The adverse conditions in the stock market
only serve to add to the gloom in this sector.
There are no easy solutions and we have
handled a number of cases in recent months ð we would only suggest
that if you have a client with likely problems, then an exploratory
meeting with us could result in stemming problems. Doing nothing
is probably not a wise option!
Retail
Overall prospects are not good with the
predicted downswing in consumer spending ð containing costs or
changing direction is often difficult in this sector. Exits tend
to be rather difficult
and a sale and leaseback only appropriate in well managed/niche
market outlets. Stock management and purchasing policies need close
attention.
Travel
All travel agencies are suffering a drop in
bookings as the Middle East crisis worsens. A significant reduction
in cash flow will seriously affect the smaller and weaker businesses.
Engineering, Manufacturing and Transport
The sectors have had a bad time for some
time now ð the current weakening of Sterling will not assist exporters
in the weak global markets and the prospects continue to be gloomy.
Consolidation and reduction in exposure is a necessary requirement
for the better managed businesses.
Solutions
We have only highlighted a few areas of
concern ð unfortunately
there are many others. A recent review showed that 29% of companies
with a sales turnover of less than £1m were loss makers!
Whilst loss of market is a significant cause
of business failure, an increasing problem is bad debts, the management
of cashflow, and debtor collection. Experience at P & A Debt Recovery
suggests that firms often don't
- Check out creditworthiness before entering into
a contract
- Refuse orders to customers with a bad payment record
- Set strict credit limits and stick to them
- Prepare and agree unambiguous contracts, terms and
conditions of trading
- Involve their sales staff in the negotiation of
sales terms
- Know and comply with their customers procedures
- Make regular checks on existing customers
- Ensure dispatch notes and invoices are accurate
and delivered to the right customer at the right address
- Put a stop on supplies to customers who are not
paying - they use a wish for more business as an incentive to further
extend credit!
Clients domiciled in the East Midlands Area
(Derbyshire, Lincolnshire, Nottinghamshire, Leicestershire and
Northamptonshire) can benefit from the East Midlands Business Recovery
Scheme, of which we are a preferred and nominated supplier. The
scheme is designed to assist businesses facing short-term financial
problems to enable them to avoid insolvency and develop long-term
sustainability. Importantly within this scheme, the Inland Revenue
and Customs and Excise will, in certain circumstances and where
there are sensible proposals, agree deferred payments.
Summary
We are clearly moving into a difficult period
for business. Well managed and well advised businesses will undoubtedly
survive, others will not. Replacing lost client income is a difficult
and time consuming task ð keeping the Æpatientï alive for the long
term should be a strategy for most clients.
Adding value to a client relationship increases
returns over the years ð keeping close to the client and supporting
his planning with ongoing monitoring is probably a pre requisite.
Partners at P & A are available to support your activities ð initial
consultations are always free.
For more information on creditor management
and debt collection, speak to Ian Wigfield on 0800 9158497 or e-mail ian.wigfield@padebtrecovery.co.uk -
there is more information on their web site www.padebtrecovery.co.uk.
For information and an introduction to the East
Midlands Business Recovery Scheme, speak to Phil Revill on 0800
5423021 or email philrevill@poppletonappleby.co.uk.
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