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Once in a lifetime financial crisis?

In the literally dark days of the 1974 recession the lights went out and I remember a job my father got me to do, "Keith, go and light these paraffin lamps and candles, oh and make sure we lock the doors if the lights go off"!

Each week we had to plan how to get every available light source in place to ensure customers in his store could see us and the merchandise! Oh and we locked the doors so they didn't walk out without paying!

It was the era of the 3 day week, power on and off sometimes without warning, Government taking on Unions and frequently coming off second best and people losing jobs by the thousands every week. This recession saw GDP fall by "only" roughly 3.5% over the piece.

What then are we to make of this observation in the week that Bank of England and Prime Minister alike uttered the R word?

Charlie Bean, BOE Deputy Governor of the Bank of England, said last week:

"This is a once-in-a-lifetime crisis and possibly the largest financial crisis of its kind in human history. In terms of the impact on the real economy we are still in early days."

Wow Charlie, so it's even worse than 70's recession which was a diabolical period for the UK economy? Even worse than the great Depression? Even worse than Japan's "lost Decade"?

Extrapolate that statement further and Charlie Bean thinks we are in for a hell of a couple of years from 2009-2010. Yes the UK saw 0.5% drop in GDP last quarter (quarter ended September 2000) but to be worse than the recessionary period of 1980-81 we will have to see GDP fall by 6% MORE to even equal that awful recession when GDP fell 6.5%.

No economists that I have followed recently expected 0.5% drop in Q3, far less 6.5% over 2-3 years!!! So does the Bank of England have a better crystal ball or is Mr Bean just plain scared because he has not seen a recession before?

Either way I am VERY WORRIED, reading Sunday papers today, a couple of older and wiser economists and former senior industrialists recounted their memories of the last recession. Blimey I must be very old being able to remember that 1974 story? That's 3 recessions or make that 4, that I have seen. Maybe time for a lie down.

Look I have been saying for 12 months or more on my websites and blogs, things ain't going to get better they will get worse. Accusations of scare mongering were made against me in 2007, but we have been telling businesses for over a year, get the tin hats on and try to survive.

Boring and repetitive end to another Blog post but make sure you have a plan to survive "this once-in-a-lifetime crisis and possibly the largest financial crisis of its kind in human history".

Get your free daily cashflow model by sending me an email or calling my team on 0800 9700539, The cost is zero but we will want your email address and contact details.

Get your FREE KSA CompanyRescue guide to cost cutting in business by clicking here

Need to spread HMRC payments? Don't wait for Alistair Darling to copy David Cameron's suggestions get your Experts Time to Pay Programme and we will guide you step by step on how to spread tax arrears over 12 or even more months. Click here for further details.

Finally, if the worse comes to the worst, and you have been made redundant unexpectedly, you can get information on what to do next by visiting our special page for redundant employees, by clicking here.

Have a good week and don't forget, call the UK's SME CompanyRescue champions if you need help or advice on 0800 9700539, we don't charge for any initial advice or meetings!

Recession now!

Well the dread R word has been used a lot recently by Mervyn King (Governor Bank of England) and of course Gordy, they obviously knew what we all found out today.

Recession big style is happening now, not next year!

A huge 0.5% drop in GDP last quarter tells its own story, remember this is for Q3 to end September 2008 - since then we have had world wide financial panic and wall to wall media coverage of the slump.

My guess is that Q4 will see a bigger drop maybe even as high as 0.7%. This would take the economy into recession formally, definition wise, but in the real world will result in thousands of failed businesses.

Now is the time, if you have not already to get that tin hat on, cut costs, manage cash daily (ask for our simple to use daily cashflow model) and make any survival plans you will need.

If cashflow pressure turns to crisis talk to us now about how a CVA ( company voluntary arrangement) could save your business, cut staff costs overnight and keep YOU in control.

David Cameron and Small Businesses. Nationalised banks.

Dave seems to be getting the message that SME's are natural voters for the Conservatives!

This last week he has demanded 6 month VAT payment holiday for struggling small companies. This seems a good idea on the surface but it would have a big impact on

A) The Exchequer - cashflow for the UK Government will be pushed out by thousands of SME's not paying VAT for 6 months (at a time when Gordon has said all Government and Councils should pay SME's in 10 days) or is this a cunning plan!?

B) The HMRC collection offices - these are the guys and gals who collect the tax and have to agree to any time to pay programme. Many of these offices are short staffed, so such a scheme being announced could cause these offices chaos.

Dave also said yesterday that companies employing fewer than 5 people could also see a reduction in NIC payments. Great, so many SME's will get 1% off this payment. He said this will allow them to pay higher interest charges (tut tut those naughty banks!).

Again a good idea but fraught with problems. Will it make SME's think twice about growing? I suppose not for a few hundred quid a year. Will it actually cost them time and therefore negate savings?

May I suggest instead of tinkering with tiny tax and NIC rates, a much more sensible idea to help new companies and fast growth companies is ZERO CORPORATION TAX for two years.

Plus if the Tories get back in power they should reinstate the 10% Capital Gains tax for entrepreneurs, after Gordon /Ali pushed it to 18%.

Entrepreneurs are much better at creating real jobs, so encourage them!

I suppose the good news is the SME's now look like being on the political agenda and being recognised as an important constituent in the next election.



BANKS
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Please let me know if you are experiencing any pressure from banks to reduce facilities.

When I was on leave last week the Government started to nationalise RBS, HBOS, LTSB and Barclays - this is an amazing turn of events almost unprecedented in modern times.

And I read that they want the banks to lend to SME's at the same levels as before. So how will they go about that then? Sit on lending and investment committees? Sit on risk and underwriting panels? Make lending decisions when they have little or no competence in setting and running budgets even when they have guaranteed income from taxation (unlike SME's)?

Well this will be interesting!

So Iceland banks are going down, my prediction was close.

Another Monday another deeper crisis, or chaos to be more accurate.

Remember chaos theory? Well someone needs to try and work out the chaos theory here and NOW would be good, give the hapless politicians and bankers a steer and hopefully we can come out the other side.

But of course nobody truly knows now what is going on.

"Astonishing" is a well hackneyed word, at this moment it seems a trifle underwhelming.

Each day brings news of bigger and wilder speculation, more fear and collapse.

Time for cool heads at international and governmental level. Will the UK Governments announcement at its pre 8am, 8th October press conference, be a big step forward or back.

My prediction is the Bank and government will collectively say the following......

1). All retail saving deposits will be GUARANTEED for 24 months.

2). 1% off base rates to bring down LIBOR.

3). RBS will get partly nationalised.

4). Bank of England will increase SLS scheme and liquidity for banks beyond overnight (ie underpin 3 month money) and buy toxic assets from all UK banks.

The hope being that "runs" on banks slow and stop. The hope being that Icesave's failure is not a forerunner of UK bank runs. The hope being that credit markets ease and banks lend once again.

If you are a small business; read my earlier blogs; get your tin hats on and focus on YOUR business not this huge global theatre.

keith

Money's too tight to mention (apologies to Simply Red)

On my journey around the UK over the last 10 days I have met potential new clients, existing clients, venture capital investors, suppliers and others. I have been to see good, viable, companies in Glasgow, London, Heathrow, Bath, Blackburn and many more online.

Without exception the common complaint is the financial markets are having an impact on their business. Banks are TIGHTENING credit lines, not reducing at this stage, just applying the terms of the facilities to the letter. Even small breaches of overdrafts lead to bounced cheques, rejected standing orders and rejected direct debit payments.

Yesterday, the Bank of England reported that lenders PLAN to reduce the amount of credit they extend to both businesses and consumers in the coming months. Worryingly this survey was taken BEFORE the recent spectacular crashing and burning of some lenders.

So if they were planning to tighten credit then, what is their likely plan now?

Tightening the screw on businesses? Whatever next, a sharp rise in insolvencies for businesses?

I do hope that common sense prevails, in the recession of 1991 many good, viable businesses went to the wall due to over zealous (or simply over-run by volume) risk managers knocking SMEs over.

Why should SME's be bashed because the bank's capital has been depleted by bad management and poor risk assessment?

Ok. we can complain all we like about the injustice, but we really listen to the message! The message published loud and clear by UK's banks is get a strong survival business plan drawn up, sharply cut costs, produce up to date management information/accounts and be ready for the time you pull on the tin hat.

Only the well prepared and determined will survive this major business crisis in 2008-2009.
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