Looking at the BBC today (BBC NEWS Business How small firms can survive the crunch) we can confirm that one company after another is telling us, "Well since the credit crunch we have seen a fall in sales".
Anecdotally there is a lot of evidence of a downturn in the UK economy, today Bradford & Bingley, last week Silverjet fell into Administration, tomorrow chains of estate agents could fail.
Its often a mystery to us where the economy's growth statistics come from and how they are calculated given the amount of bad news out there. I suppose a small company or two failing does not have much impact on a huge economy like the UK's but with thousands of SME companies and larger quoted companies reporting sales falling, then is it fair to say the stats are lagging well behind the reality for many business people?
In the last two weeks we have heard the same story at least 5 times. "I am an estate agent and my sales (£'s in the till, not just house prices) are actually down 45-60%".
This level of sales cannot be sustained without massive cost cutting and retrenching. We hear many EA's are waiting until the green shoots of growth return, believe me they will be a long time coming!
We are working with a medium sized group of estate agents and have led a restructuring that will allow their business to survive for 18 months of even LOWER sales than they are currently seeing. The company voluntary arrangement process is we think the best tool for this.
SLASH COSTS TO SURVIVE!
Closure of non core operations, reduction of people costs and handing back cars for example are just some of the radical and far reaching steps we have taken. Now their cost base is down 50% as is the level of sales.
Will they survive? I think they will, they took action sooner than their competition, they appointed KSA to lead a downsizing operation and they will consider ANY means of survival.
My theory is it will only take a 10% rise in sales volumes to transform a survival strategy into a very profitable business again. With 40% of all EA's expected to fail in 2008-9 this should lead to modest sales growth for the survivors even if house sales stay at current levels.
For this estate agency company that relies upon confidence, survival for 18 months may seem a slightly negative turnaround strategy, but we believe it's the right one in uncharted waters like the current credit crisis.
When a modicum of confidence returns to lenders they will see a sunny future.
UPDATE 8th June. The headlines in the financial press say Estate agents 'facing job purge' up to 15,000 estate agents could lose their jobs this year due to the sagging housing market, research has suggested.
Well we can concur with that, the answer for many is creditors voluntary liquidation (liquidation) or if trading as sole traders - bankruptcy. To avoid this people need to look at the above article and decide if the business can be saved.