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Happy New Year, enjoy while you can!

Happy New Year!

So, here is my last blog of 2008, I guess most won't read this until 5th January when most people are back to work and facing the dark days of January. I hope you had a good break, a relaxing time with too much food and drink and now realise, like me, that some exercise would be a sensible idea!

Over the week since my last blog Christmas has come and gone, sales have started, many retailers have failed with many more teetering on the brink.

Retail disaster over Christmas? If you need to close non performing retail outlets, consider Pre-Pack Administration or company voluntary arrangements.

This last fortnight saw fashion retailer USC pre-packaged through administration back to previous owner Sir Tom Hunter; Whittards sold to a private equity company; Zavvi enter trading administration; Officers Club in a pre-pack; Adams on brink of Administration and so on.

There will be many more, today I took a call from a distribution company, its biggest customer? TNT, it was doing most of it's work as a subcontractor to TNT and now it has told them there is NO WORK for the foreseeable future as the TNT depot and order book is virtually empty!

Big name retail failures take the headlines but this small Manchester company won't survive January without work, the MD will probably lose her home and the staff their jobs.

This is the flip side of the big failures and over the next 3 months more than 300,000 people will lose their jobs, as a result of the crash of 2008, in SME companies.

Mind you having been to the "January" sales on Saturday the question seems to be "recession what recession"? Or are people just buying bargains and now, and will not spend unless retailers give them a big discount in future? Time will tell.

Once again happy new year to one and all.

Season of tidings and joy OR despair and worry

It's the time of year for reflecting on the year just ending and the new one ahead, generally the last 16 years or so have been boom times and people could look ahead with optimism and excitement.

As we draw close to the witching hour of rent and salary payments many retailers may not be able to see past 29th December. That's the day that many have to find 3 month's worth of rent and pay December salaries. If the big insolvency boys are to be believed there will be up to 15 major retailers going into insolvency procedures (typically pre-pack administrations) over the festive period or beyond.

For the management and staff involved this will be a frightening time: will I get my redundancy? If so how much redundancy am I entitled to? How will I pay the mortgage? Will I get a new job?

Hardly the stuff of tidings and joy for those people. Expect to see 100,000 plus people lose their job in January 2009, making this the worst month since the recession of the early 90's. But this will only be the start of much higher job losses for a period of up to 12 months.

Some of the at risk retailers in my view include: Zavvi, DSG International (Currys), Whittards of Chelsea, Ponden Mill and Clinton Cards.

To my regular readers ignore the gloomy prognostications and have a great time over the break.

KSA will be closed from lunchtime today until Monday 5th January but anything urgent please call me on 07974 086779 or email keiths@companyrescue.co.uk

Vauxhall going into administration?

Vauxhall going into administration may not be as shocking as many people think!

Why? Well let's look at look at two key issues for General Motors UK Ltd (the actual trading company in the UK):

Number 1: look at its balance sheet: at 31st March 2007 it had an insolvent balance sheet to the tune of (£396m) yes negative to £396m. What does that balance sheet look like if the supporting parent goes into Chapter 11 in the US? INSOLVENT.

Number 2: look at its credit rating - ZERO. So its highly likely that suppliers to General Motors UK Ltd cannot get any credit insurance or indeed factoring /discounting of their debts. So as the board of those suppliers do you look at the news, consider the issues and STOP supplying GMUK? Or do you keep supplying?

Incredibly complex decisions need to be made by hundreds of suppliers to Vauxhall and other car companies over the next few weeks.

Who controls whether a company enters an insolvency procedure?

When we ask this question the immediate answer that springs to people's mind is the banks? Directors? Creditors? The tax man?

Well, you would be partly correct with that perm any one of 4 approach!

Of course directors have a legal obligation not to trade wrongfully or to trade when the company is insolvent and they know it has no reasonable prospect of paying its debts as and when they fall due. Witness the directors of Woolworths last week having to put the company into administration because cashflow was so bad that it could not see how to pay wages and creditors.

There are many stories of banks forcing companies into administration or receivership because the company was so distressed the banks stepped in try and control things. So yes bank's often do take part in the decision to enter insolvency (and not just their own)!

With HMRC responsible for some 60% of all winding up petitions (obviously before being told to become the next national bank for SMEs) one could argue that aggressive creditors control whether a company goes into an insolvency procedure.

But there is another force at work here. Many companies use factoring, invoice discounting and trade insurance to assist with working capital in their business. In the last 2 weeks I have been planning to write this piece because it is the TRADE INSURERS that are now controlling the future of thousands of UK companies SME or large companies.

If the trade insurer removes cover on a debtor company, your company could suffer rapidly. Last week I met with a company that had suffered a £300,000 hit to cashflow because the factoring company it used had clawed back advances against General Motors invoices.

This week I am reliably informed that suppliers to Ford have had a similar unilateral decision forced upon them. Indeed this was from an ex client who had successfully exited their CVA. Perhaps this could be rectified by Ford Motors paying in say 30 days or less, if not this could undo 3 years of hard turnaround work.

Rover was brought down by trade insurers refusing to cover their risk, Woolworths faced the same ignominy last week, others will see the same thing happen to them and usually to one of their larger customers.

Cascade this down through the supply chain and big problems lie ahead even for profitable companies.

So the answer to my question - Atradius, Euler Hermes and Coface? If you don't know these names you soon will.

Falling off a cliff...the worry that REALLY troubles SME directors

With Government fiddling whilst UK business burns, its distressing to hear story after story of doom and gloom. Good job I am a relentlessly optimistic person, you have to be to do rescue and recovery work!

People are asking me the same questions every day now, "what are sales like for other people? "have they fallen off a cliff"? "I am desperate for cash, my customers are slowing down payment, what can I do"?

These are of course anecdotal and based upon the micro business issues they face, but today the bigger picture started to emerge. Sales HAVE fallen off a cliff, read the excerpt from the BBC news site today below

Record decline in manufacturing

Collapsing new orders have been blamed for the weak figures. British manufacturing shrank in November at the fastest rate since the figures began being collected in 1992. The Purchasing Managers' Index fell to 34.4 from October's figure of 40.7, which was both the lowest level and biggest fall seen on the index. The fall in the figures was based on a collapse in new orders.

Alan Clarke at BNP Paribas described the index as being at "absolutely horrific levels".
"We are already seeing a pretty rapid pace of contraction in hard manufacturing activity in the UK and it is going to get even worse.

Worrying times indeed, I now forecast that cashflow will reach critical levels in the weeks after Christmas, with factory and business shutdowns its easy not to pay your creditors, trouble is your customers won't be paying YOU either.

So manage cash, costs and spending NOW.


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