Don’t be a dead parrot

Sam Talby

Sam Talby

Sam Talby, of FRP Advisory discusses the upcoming budget and business growth.

A new budget is in the offing and hope springs eternal that the Chancellor will produce some positive policies to foster business growth.

Don’t hold your breath.

Pinning a business strategy on hope from external sources alone will not provide a solution.

Clear and present danger

The clear and present dangers to business health include: rising energy /fuel and transport costs; record low interest rates; inflation – hitting input costs and pressurising wage inflation even before the economy picks up and a continuing weak export market particularly in mainland Europe.

How a business plans for and adapts to any combination of these dangers – regardless of any changes to its operating market – will determine its financial health in what remains a low growth macro economy.

Zombie businesses

There has been much talk of the economy being dragged down by zombie businesses.

The focus however should be less on treating “zombies” and more on nursing healthy companies to even greater levels of fitness to catalyse wider economic growth.

Increasing credit liquidity for healthy companies is vital.

More work needs to be done to make the government’s flagship £80bn funding for lending scheme work; given net lending fell in q4 2012 don’t pin hopes on that system improving overnight.

Prime Minister talks of recovery

The Prime Minster has spoken of a recovery and ironically if we do move from recessionary mode to recovery, businesses may still be vulnerable to due to constraints on easy access to working capital to support and sustain growth.

Overtrading can occur where there is insufficient finance to sustain the level of business.

Do nothing strategy

The collapse of the financial markets in 2008 led many businesses to adopt a “do nothing”, defensive approach, focusing, rightly at the time, on strengthening balance sheets rather than having an eye on growth.

Such an approach in today’s environment may be inappropriate but an awareness of financial and operational warning signs is still needed together with an ability to adapt to change.

In virtually all business lifecycles there are two periods of vulnerability: rapid growth triggering dangers of overtrading; decline from one, or a mixture of falling sales, uncontrolled costs and falling profits.

Physician heal thyself

Knowing where in the cycle a business sits dictates what action is needed. If business owners are unable to self diagnose then the biblical saying of “Physician, heal thyself” still has relevance.

Actively seeking out independent advice from reputable and experienced professionals at the earliest possible awareness of financial stress can aid a swifter and stronger recovery than waiting until operational sickness has set in.

A “do nothing strategy”, will achieve nothing. Taking action at the right time can be transformational.

A do-nothing approach may only leave reductive options: sell the business – assuming there is a willing buyer; restructure – there has to be a business to restructure; or shut down via a liquidation.

The alternative is to take action and be productive.