The world according to Panto…….

 As I get increasingly older, Christmas traditions become more important. No I am not going to refer to the British failure to deal with snow and ice. I am thinking of something much closer to my heart, the peculiar British tradition known as pantomime. You know the sort of thing, girl falls in love with girl, transvestites abound, ghosts creep up behind you, fairies wave their wands and it is all deemed suitable for a family audience.

Traditionally (that word again) we at Orchard Growth Partners have offered our contacts an early Christmas present in the form of some tips and ideas to help businesses improve their performance in the year to come. This year we have decided to look at the lessons that can be learned from those familiar pantomimes that we all know and love.

Pantomime has many lessons for business leaders (oh no it doesn’t! Oh Yes it does! Isn’t that a bit tenuous? Oh no its not….). For example King Arthur demonstrates the value of leadership, Snow White examines the benefits of leftfield collaborations, Cinderella shares the secrets of successful rebranding and Dick Whittington  shows how simple tried and trusted solutions can crack new markets.

Of course there are many of you who are of the opinion that the world at present is one gigantic pantomime or at the very least a farce. Incompetent business leaders, bungling bureaucrats and bickering politicians have caused many of us to hold our head in our hands and wonder at the craziness of it all.

And yet that does both these forms of entertainment a great disservice. Good pantomimes, like good businesses, require skill, imagination and hard work in order to succeed i.e. put on a great show and get punters to part with their hard earned money. A pantomime that was put together by the incompetents, bunglers and bickerers above would not be funny and would fail as totally as everything else they seem to do in their day jobs.

I guess there are many people out there who are looking to put the year of 2010 “behind them”, even though 2011 will bring its own worries. To them and everybody else out there I wish you a very merry Christmas and a happy, healthy and prosperous New Year.

Santa’s Little UK Based Helpers…..

As Santa gears up for his annual global trek bearing gifts for children young and old, my thoughts turn idly to the elves that spend all year busily manufacturing the products that are loading on the sled. Contrary to popular belief many of these elves might actually be situated in the UK. To borrow heavily on the words of Mark Twain, rumours of the death of UK manufacturing have been greatly exaggerated.

UK manufacturing is on a roll. According to the November Purchasing Managers Index (PMI) the sector grew at its fastest rate for 16 years. There has been record growth in employment in the sector. The Engineering Employers Federation have said that the manufacturing sector will outperform the rest of the economy next year and that firms were powering ahead, recruiting staff and investing in their businesses. Manufacturers were ending the year on a high and expecting to enter 2011 on a strong footing. Very impressive indeed.

Manufacturing currently accounts for 13% of UK GDP. OK in Germany it is 24% but the figure in France, which is fiercely protective of its indigenous industries, is broadly the same as in the UK and in the US it is lower. We are unlikely to get back to the 30% level of the 1970s, but given that the last ten years has seen manufacturing output fall by 11%, the rebalancing that we are starting to experience is very welcome if long overdue.

Historically UK manufacturing has always been about harking back to the past rather than looking to the future, an approach characterised by forlorn attempts to protect the heavy industries of the past. This attitude has led talented graduates looking elsewhere for their career options. With the tarnishing of the financial services industry, and a touch more glamour surrounding high tech specialised manufacturing hopefully we are starting to see a real change in attitude towards the sector.

So as we struggle with the packing and wire ties that seem to accompany our Chinese made toys this Christmas morning, we should also look forward to a gradual increase in “Made in Britain” goods emerging from wrapping paper in future years. A little ray of sunshine to offset the wintery conditions the country is facing at present.

And the point is……?

 I am sure my fellow Enterprise Britain blogger Tony Drury will sooner or later have some fun with the Wikileaks revelations by discovering one or two that may have eluded the press thus far. However the one that particularly stood out for me was the revelation that Bank of England governor, Mervyn King had criticized the Prime Minister and Chancellor, prior to their election, for their lack of economic experience and their tendency to think of economic issues in terms “of politics and how they might affect Tory electorability."

And his point is? That it is a surprise that Dave and George thought only in terms of politics clearly reflects more on Mervyn King than our leading political duo. They are first and foremost politicians and in today’s world that means their focus is tomorrow’s headlines and staying in office. I am not saying that public service and making a good fist of running UK plc doesn’t fit with their objectives but these are likely to be secondary to their main goals.

That does not mean the current set up has a lot to recommend it. No management book would advocate the cabinet structure that runs UK plc. To have somebody with no real knowledge or experience of their departmental activities or suitable financial and management skills being expected to manage an organisation spending billions of pounds and employing tens of thousands of people seems mad when you think about it. Add to this the likelihood that they will be moved on at just about the time they have garnered a sense of understanding as to what their department is actually all about to another department and you have a system that seems totally bonkers.

OK I will accept that leadership, communication and interpersonal skills are important qualities that many politicians have. There are also career civil servants to provide some stability although senior civil servants are often be promoted based on administrative experience rather than departmental expertise. That still does not make it right.

Having said that is such a situation that unusual outside of politics? Perhaps large corporate bodies with their frequent internal reorganisations are not a lot better and these will also lack the steadying continuity that the civil service is there to provide. One of my ex-bosses noted as he departed that in his four years with the company he had had three bosses, so the law of averages dictated that he would get one with whom his face did not fit.

We are constantly told that when recruiting to fill a role in a business, we are looking for competence, aptitude and ideally some relevant skills and experience. And yet at the very top of the UK we are managed by people with little relevant experience whose main concern is and always will be getting re-elected. And you sometimes wonder why we’re in the mess we’re in?

It's Berlin Time....

This week sees MPs (well those who can be bothered to turn up on a Friday) debate the idea of the UK moving to “Berlin Time”. Tory MP Rebecca Harris will be introducing a private members bill which is aimed at moving the UK permanently one hour ahead i.e. on the same time zone as most of continental Europe. This could, according to each side of the argument, either provide the UK, particularly the south east, with lighter, safer more enjoyable evenings, or plunge Scotland and all points west into a spiral of gloom and depression as mornings stay darker for longer.

Berlin of course is the capital city of the country which is currently Europe’s strongest economy. News emerged last week that German economic confidence has reached the highest levels since records began post unification in 1990. Indeed Germany’s economics minister Rainer Bruederle has gone on record as saying that “full employment will soon be possible”. This is a remarkable turnaround for an economy where unemployment has been stubbornly high for much of the past decade, and that fell off the end of a cliff at the end of 2008. Much of Germany’s current economic success is attributed to strong export performance, although domestic demand has also played its part.

The German economy has always run on a strange mixture of entrepreneurship and regulation. The typically family run "mittelstand" companies, enterprising SME businesses which focus on innovative and exportable products based on a strong commitment to research and development and long term planning, sit alongside some of the most fearsome employment protection systems in the world. And yet at the moment it seems to be working extremely well.

The situation in Germany is not perfect, and clouds exist in terms of the euro crises, public spending cuts and domestic banking risks. It would also help if they were to borrow and spend more as consumers. However, as the UK looks to rebalance itself as an economy which is weighted towards export and investment, rather that the consumption and borrowing model that we have grown used to, marrying Germany’s longer term approach to developing and making high value products that people want with the UK’s strengths of flexibility and dynamism looks like a winning combination. 

Something to consider maybe as we prepare for our usual pre Christmas splurge prior to embarking on an uncertain 2011? We don't have to be on the same time zone.....

The monthly employment burden…..

Salaries are great aren’t they? You turn up to work every day and at some point near the end of the month a sum of money arrives in your bank account. The cycle then repeats itself next month and so on.

At the start of my career at a well known plc I remember being summoned to an internal seminar where the Group Corporate Treasurer boldly stated that he had a dream. His dream was that instead of that regular dollop of money landing in your bank account one month we would just receive an IOU.

“Dear colleagues. I am afraid we don’t have enough cash to pay you this month. Please accept this IOU and hopefully we will be able to make payment shortly. Yours, Mr Treasurer.”

Slightly less inspiring than Martin Luther King you will agree. And yet quite alarming to a young impressionable employee. Mind you we never seriously considered that such a situation would arise in a major company. 

The fact is that when you work in a big organisation, particularly those in the public sector, the money just hits your bank account. You have no thought as to how it gets there. Indeed there is no question that it will ever not be there. Obviously there is magic or something at work to ensure that it happens. The cash situation of the company has nothing to do with anything.

It is only when entering SME land that I really started to appreciate the skills and fears surrounding cash management and in particular that time of the month (or week) when wages and salaries had to be paid. You can play around with supplier payments to a certain degree but employee wages are a last resort. Waking up in a sweat over that big payment that takes forever to arrive, and on which you are relying to pay those all important people who work for you, becomes a regular occurrence.

SMEs are viewed as the engine of growth and the most likely source of the new jobs that are going to be needed to keep unemployment under control. However a recent survey revealed that 85% of small and medium sized companies are not looking to take on new people any time soon and may indeed be about to cut back again. The usual excuses of red tape were trotted out but I think there something more basic at work here.

Forget excessive regulation and laws that provide a high level of protection to employees that is a barrier to recruitment. The feeling in the pit of the stomach when the time of the month comes to pay the salaries is the real employment burden SME owners and managers have to bear, and is probably a major reason as to why unemployment figures will remain higher in the short term that the Government would like.

Time to remember….

 11am Sunday in a little town in the north west part of Surrey that used to be known as Middlesex . Hundreds of people of all ages huddled around our local war memorial. Maybe it’s me but there seem to be many more people there than last year. All gathered in silence to remember those who gave their lives in the service of their country.

To my shame I never used to make that short trip up to the high street. Oh I would buy my annual poppy and pay lip service to Remembrance Sunday but that was it. It took the involvement of my daughters in the Remembrance Day parades, through their guiding activities, to finally get me to show proper respect. The irony of the next generation leading me to this rather than the previous generation is not lost on me.

Maybe it was because as a sixties child I was the last generation that was still living in the shadow of the Second World War. We all had grandparents who had fought in it and parents who had experienced it through bombing raids, evacuation and rationing. War films were commonplace on TV. Our Action Men fought the Germans. We enjoyed living off of our victories in 1945 (and 1966).We even laughed when Basil Fawlty told us not to mention “it”. It was still real to us even if we hadn’t experienced it directly. We were constantly being pushed to remember “the War”, and as a result that day in November was perhaps not special enough.

Then we had our first real experience of our own war through the Falklands conflict. It may have happened on the other side of the world and not really affected us at all, but it was a reminder to us that we had an army that could be sent off to fight (as opposed to their deployment on home soil in Northern Ireland). Subsequent involvement in Kuwait, Kosovo, Iraq and Afghanistan has shown us that sadly our soldiers continue to die on active service.

65 years after the last truly global conflict the importance of remembering is probably stronger than ever. My daughter is currently part of a project to ensure the horrors of Auschwitz are not forgotten. Every new generation needs to take on board the lessons of the past so that they do not end up experiencing it for themselves.

I am not going to make any fatuous attempt to draw any parallels with Enterprise Britain. Sometimes we all have to put aside our daily challenges, problems and grumbles and just take some time to remember. For their tomorrows, if not today….

You’ve been Serco-ed…..

Ha Ha Ha. I have to admit to being extremely amused by the recent Serco fiasco. Having told the Government that, yes of course it would work with them to cut costs, their FD, Andrew Jenner, then turned around to their suppliers and told them that, er  they were going to be the people to be providing those cost cuts. Job done or so they thought.

However they reckoned without a robust government response to their shameless bullying of suppliers. Cabinet Office Minister Francis Maude intervened and the public services provider were forced to issue an unreserved apology. To cap it all the share price tanked as a result. No less than they deserved you might think and you would be right. Definitely something to cheer people up on a Monday morning.

But there is a serious side to all of this. To a certain extent big corporate Britain has been let off lightly so far. Profits are recovering, due to cost cutting it has to be said, rather than imaginative revenue growth. Balance sheets which weren’t that stretched anyway are being strengthened by a hungry bond market providing cheap money. As a result executive pay packets are soaring.

Yet, as the Serco episode above shows, they are still squeezing their suppliers, not only in terms of asking for retrospective “rebates”, but also extending payment terms by up to 90 days. This takes its toll on already cash strapped SME businesses, and is doing as much damage to their chances of survival as the current lack of available finance.

As Part Time FDs we see this frequently when working with our SME clients. If these businesses were able to just claw back a month’s worth of working capital, the cash injection into the SME sector would surely be significantly more than the government and banks have been able to manage so far.    

Big corporates more than ever have their part to play in Britain’s recovery, particularly in light of the austerity measures that the government is having to put in place to reduce its debt. A 30 day reduction in the working capital cycle will do more for enterprise Britain that any amounts of Government exhortations on banks to lend. Come on corporate Britain, it is now time for you to do your bit….

Because we’re worth it….

Wayne Rooney negotiates a contract that could earn him in excess of £200,000 a week. FTSE executive pay has increased by 55% in the past year. Eric Pickles berates the local government “gravy train” and is demanding top Public Sector bosses take a pay cut of up to 10%. Throw in the regular comments concerning bankers pay and bonuses and we are once again playing one of Britain’s favourite pastimes, namely a fascination with top people’s pay.

The British have an interesting attitude to high levels of remuneration. We revel in the glamour of high earning superstars and yet frown on anything that smacks of “fat cattery”. This approach tends to glorify celebrities and demonise business people.

The riches that Cheryl Cole, who is moderately attractive and talented, has accumulated do not provoke outrage. The pay and perks of individuals who are responsible for billions of pounds and thousands of jobs seemingly do. And yet it is well run businesses that create the wealth that enables us to indulge these celebrities.

The BA results are a timely reminder of this. Willie Walsh has had to cope with recession, strikes and natural disasters, yet has managed to deliver profits that were double expectations, and negotiate a major merger with Iberia to boot. To do all that has required prodigious talent and deft footwork, which is more than equal to that of Mr Rooney, yet Mr Walsh will be pulling in considerably less than footballer’s salary, and will no doubt get more negative headlines for doing so (Rooney’s negative headlines have been more to do with his negotiating tactics than the final deal).

Maybe it is because people look at the likes of Cole and Rooney and say, yes, with a little more talent and luck that could be me. They can identify with these superstars in way that they cannot with a talented business person.

What does this mean for Enterprise Britain? Entrepreneurs rarely tend to enjoy high salaries. They prefer to make their money on exiting their business, which is arguably a more realistic measure of wealth created. Indeed as the recent IOD report on director pay shows many directors of small and medium sized businesses are sharing their employees’ pain regarding pay freezes and cuts. However they too are tarnished by the anti business feeling that accompanies stories of high executive pay.

Some top executives packages are clearly excessive, unrelated to performance or ability and deserving of criticism. And yet unless we start to really appreciate top business people and stop begrudging them their rewards we are going to struggle to develop the enterprise economy that will provide the jobs and wealth of the future. Particularly those for footballers and pop stars……

Finance fall guys and unsung heroes…

Yet again a finance chief falls on his sword due to accounting errors. Holiday group TUI’s CFO Paul Bowtell has resigned as a result of the revelation that the company had to write off £117m of irreconcilable balances following its merger with First Choice in 2007. The differences, which led to the TUI share price falling 7%, were due to failures in combining the IT systems of the two businesses.

Internal balances are always a problem in large groups. It seems that when dealing with fellow subsidiaries, all good credit control procedures go out the window and internal politics takes over, leaving a trail of unreconciled and unagreed balances that can end up amounting to a sizeable sum of money.

Mind you it is funny how these accounting errors always result in a loss. I don’t recall ever having heard of a CFO being sacked for accounting errors that resulted in a profit even though the system that produced such profits would have been just as faulty as one that produced losses. Maybe they just overlook those sorts of errors (and perhaps the impact on executive bonuses…).

The above of course is a salutary reminder to us FDs how dependent we are on our systems and the people that operate them. Smaller businesses also often get into a mess because their bookkeeper or accounts team does not perform, or does not have sufficient understanding of the business to produce a proper set of numbers.

As an FD you can produce wonderful reports, charts and plans but they are meaningless unless the raw data is accurate and reliable. As I recently said to client, you can have the most sophisticated accounting and reporting system going, but if the input is not controlled, then the figures produced will be worthless. GIGO (Garbage In Garbage Out) in computer speak.

A good reliable accounts team or bookkeeping set up is worth its weight in gold and are the unsung heroes of an effective management reporting and control system. Make sure these people know what they are doing, and more importantly, why they are doing it, and your life as an FD becomes much easier.

Still at least Mr Bowtell did the honourable thing and resigned, as opposed to clinging on and blaming a few underlings. There is a lesson in that for someone somewhere……

Lessons in debt…..

I remember when I got my first credit card. I acquired it when I opened my first bank account as a student. The credit limit was £100, I used it sparingly, and I always paid back the full amount. Of course in those days students received a grant and I was able to deposit mine in a building society account and gain some additional income as the grant balance ran down over the course of a term (those were the days when savers also received a decent rate of interest!).

The upshot of all this was that I was able to emerge debt free from my student days, and save sufficient money to put down a deposit on a flat. A mortgage was therefore my first real experience of debt. However the systems in place at that time regarding multiples of income and percentage of loan to value meant that it was manageable and affordable. I continued to pay back my credit cards on time. Like my parents I believed that debt was to be used sparingly, was only for sensible reasons, and should be comfortably paid back within a reasonable period.  

The reason for the above wave of nostalgia is Lord Browne’s review of higher education funding which was published last week. This raised the prospect of students emerging from higher education with a level of debt that would have been unimaginable to my younger self. On top of this they will probably have an overdraft, credit card borrowings, a car loan and other debts to which they will then be expected to add a mortgage.

The rise of debt fuelled consumption by both individuals and government is blamed by many for the economic struggles that we now face. And yet are we really surprised at this, given that young people are effectively educated to believe that a mountain of debt is a fact of life, and that paying it back is something that will have to wait until resources allow?

There is no easy answer to this. Higher education has reached the stage where it is impossible to fund it without student contribution. Too many students and too many courses are spreading resources far too thinly. And yet I can’t help thinking burdening young people with this level of debt is sending out the wrong message, potentially discouraging able students, and thus storing up even more problems for the future.

Dip and Double-Dip

Drat and double drat as Dick Dastardly used to say. Or should that be dip and double-dip. A Deloitte survey has just revealed that confidence has reached an 18 month low among CFOs in the City, and that more than a third of those questioned believed that the UK was heading for a double-dip recession.

Finance chiefs are not paid to be cheerful (well not until they become CEOs and are magically transformed into over optimistic flag waving cheerleaders for their businesses) so for them to be so pessimistic is clearly par for the course. But there is at best an eerie silence surrounding the economy at the moment as UK plc waits with bated breath for the comprehensive spending review to unveil its conclusions on October 20^th.

There is even a sense within the coalition government that maybe they have managed expectations too well, and Whitehall is now echoing to the sound of ministers furiously back peddling and letting it be known that these cuts may not be as bad as feared, or maybe scaled back if the economy starts tanking again.

Then you have Philip Green saying that the Government is rubbish at buying stuff and could save billions just by better procurement. Great stuff, until you realise that Government buys from the private sector and these "efficiency gains" are actually cuts by another name.

We all recognise that the public sector is living beyond its means, and that spending has to be reined back now to avoid more serious austerity in the future. However the necessary initiatives to help smaller businesses take up the slack are conspicuous by their absence. 

Economies feed off of confidence, and this is a commodity that is in very short supply at the moment. It is particularly frustrating as many businesses are having a good year, and in normal circumstance would probably be planning for further growth. Now all I hear is “well let’s just wait and see how the cuts affect us.”

For what it is worth, most of the evidence I have come across so far is pointing to the fact that we will probably avoid a double dip. However there is a danger that it probably won’t seem like it, which to my mind is the worst of all worlds.

Capitalism really is nice – trust me…

I have been reading a number of political and spy thrillers recently which has coincided nicely with the return of Spooks to our screens. The key element of this form of entertainment is that nobody is as they seem, everybody is out to do the dirty on you, and therefore you can’t trust anybody.

Given all that, it never ceases to amaze me how important trust in business actually is, and, more importantly, how much we take it for granted. For instance granting credit to a customer involves a tremendous amount of trust, and yet it is probably the key component of a functioning business system. Without this trust many of us just would not be able to do business.

Yes of course we all put in place legal contracts and agreements, and operate using standard terms and conditions, but even with these there is still a belief that we in the main are all nice fair people dealing with other nice fair people.

That is why on the odd occasion that you do deal with somebody who shows no trust and is frankly not nice, there is actually a sense of righteous indignation. The fact that this person is acting in their best interests in accordance with whatever agreement you have put in place does not  detract from the feeling that they are not playing fair.

This is why I do get very frustrated when politicians stand up and criticize what they term the excesses of capitalism for all the ills in the world today. I think there is just as much reason to criticize the excesses of politics which have surely played their part in the economic and other problems of the last few years and much more besides.

I remember a sign at one of the anti-capitalism marches a few years ago which proclaimed “Let’s get rid of capitalism and replace it with something much nicer”. I am not sure that any of the other systems that have been tried so far have been much nicer in practice. Vince Cable may still be able to get cheap headlines by lambasting it but capitalism in the main is really quite nice. Trust me. No really trust me…..

Banking on statistics

Last week at the invitation of Barclays Bank I had the opportunity over breakfast to listen to the thoughts of Chris Piper, who is the Bank of England Agent  for Central Southern England. His role, along with his colleagues from the other eleven regions, is to provide the anecdotal evidence to support (or not as the case maybe) the statistical evidence that it gathers.

It was an off the record briefing so I can’t divulge all that he said. However one thing that struck me when he was taking us through the various statistics and forecasts that the Bank produce (and that are freely available on its website) was how dependent the whole direction of policy seemed to be on the completeness and the accuracy of such information.

This worries me somewhat given my past experience of filling out such forms for one of my then employer’s subsidiaries as a very junior accountant. The form I received requested various bits of data concerning the economic output of the company, and came with a stern reminder that this was compulsory under the Statistics Of Trade Act 1947 (which remains the act in force regarding the collection of data for government purposes to this day).

Given this company had specialised in doing projects in Iran under the Shah, and that these returns were being prepared in the late eighties, you can understand why the economic activity that was being reported was somewhat minimal. Even though I consistently reflected this, the returns kept on coming, and threat of non compliance remained.

I am not saying that today’s statistics are not prepared to the highest professional standards, as they clearly are, or that companies and individuals provide deliberately misleading data. It is just that in the battle between fallible human input and sophisticated mathematical processes the former will always win.

Therefore it is not surprising that in the area of crystal ball gazing, the Bank of England are probably as in the dark as the rest of us, in spite of the wealth of data at its disposal. That is why it needs to keep its ear closely to the ground, and why the work of Chris and his colleagues throughout the country is vital in ensuring that policy reflects what is necessary rather than what the numbers say.

Tax means never having to say you are sorry

It is a testament to the sad accountant that I am that the Wayne Rooney story which caught my eye this weekend related not to his attempts to rebuild his marriage after his recently reported indiscretions, but to the fact that he and a number of Premiership footballers and clubs are being chased for as much as £200million in tax over payments in respect of “image rights”.

This was probably due to the fact that HMRC is once again in the news for the wrong reasons, which were not helped by HMRC’s Permanent Secretary, Dave Hartnett’s less than fulsome apology for the coding errors that have led to millions of people dreading a pre Christmas envelop telling them of the extra tax that they will have to pay.

I will leave it to others to blog on the continuing failure of public officials to understand when they are in the wrong and apologise accordingly. What the PAYE fiasco once again shows is that the current tax system is still struggling to cope with demands placed upon it by the growing development of enterprise Britain.

The one job, one employer, one life scenario that PAYE was designed to cope with has been in steady decline for much of this millennium, and it will no doubt be dealt a further blow with the demise of hundreds of thousands of public sector jobs. Second jobs, pension payments whilst continuing to work longer, one off consultancy assignments and portfolio careers are becoming increasing common, and in due course will become the norm.

This will require an HMRC that is dedicated to helping people get it right rather than one that works on the presumption that they have got it wrong. Sadly, in spite of the claims that their new computer systems will ultimately deliver this, the current signs are not promising.

Targeting the small percentage of taxpayers who can afford to have imaginative tax reduction schemes devised for them for investigation is something that the 80:20 rule would suggest was a sensible mix of resource and yield. This is grown up territory, and those who play in it are more than able to look after themselves.

For the rest of us who do our best to comply, and trust in the authorities to at least make a stab at getting it right, it is going to take a significant improvement in performance by HMRC if Dave Hartnett and his successors are not to be constantly practising their use of the ‘S’ word.

15 seconds of fame

Andy Warhol once said that everyone would be famous for 15 minutes. Of course he lived in the more leisurely sixties, and if he was still alive today and coping with our ever decreasing attention spans, he would surely have rejoiced in the fact that everybody’s day in the sun would now be much briefer than he ever would have envisaged.

Anyway my 15 seconds have arrived. I was quoted in parliament yesterday during the budget debate, in a speech made by Mary Macleod, the newly elected MP for Brentford and Isleworth. In true deprecating accountant manner, it was not something I actively sought. I was asked by the Hounslow Chamber of Commerce to provide a suitable comment for inclusion in Ms Macleod’s speech, which I did. The rest, as Andy Warhol would no doubt say, is history.

OK it may have been slightly tarnished by the fact that they got my first name wrong, but that isn’t unusual, and at least they spelt the surname correctly. Maybe the gods of fame might take pity on me and allow me another 15 seconds some other day…

UK business location – that’ll do nicely….

Hooray somebody loves us! With our World Cup hosting dreams potentially in tatters, and having finished bottom of the pile at the Eurovision Song Contest, I was beginning to think the world was falling out of love with this sceptred isle.  However, never fear, we are still viewed as the best place in Europe for overseas businesses to invest in.


Whether this will survive increasing rates of taxation, volcanic ash, a seemingly part-time national airline and the gradual migration of business eastwards is yet to be seen, but clearly the UK is still managing to maintain its position as a location of choice for inward direct investment.

A pragmatic and flexible approach, coupled with an enterprise culture that has not yet been throttled out of us by increasing legislative red tape helps.  Speaking the world’s current favourite business language doesn’t do us any harm either.  Cynics may point to the fact that our open door policy to anybody who has the cash to buy up any business that takes their fancy may also be a key factor in our attractiveness. Whatever the reason, we need to remember that it remains a competitive world out there, and this trend cannot be assumed to continue.

With trading and government deficits needing to be closed in some way, continued foreign direct investment is vital to the UK’s economic future, but we take it for granted at our peril.  Whether it is preserving the skills and qualities that we already have, or developing new ones, it is the responsibility of all us to ensure we continue to be the investment location of choice.

The Joy Of Pensions

OK, it’s not sex, though at least I have now grabbed your attention.  But can pensions ever be fun? I have to admit that the thought of a pensions dedicated event did not fill me with enthusiasm. Fair play then to Melanie Stern, and her team at Financial Director magazine, who put together a really enjoyable and informative evening at the London Stock Exchange last week.

Of course it helps if your speakers are entertaining, and in Kevin Wesbroom and Jackie Daldorph from Hewitt Associates,  Allan Course, an independent pension trustee, and Michael Johnson, author of a Centre for Policy Studies paper on changes to state, private sector and public sector pensions, Melanie had made some wise choices.

Kevin and Jackie set the scene with an amusing overview of the current pensions scene, including the election pledges of the three main parties, the key issues that nobody seems prepared to address, public sector pensions and the likely impact of NEST and NEO. Allan highlighted some of the challenges that pension fund trustees were facing in a world that wants to move away from final salary pension schemes.

Yet it was Michael who advanced the notion that the problem with pensions was the concept of pensions themselves. He strongly advocated a wider more flexible savings method that was more in tune with the uncertain times that we were now facing.

There is an argument that says that pensions are “so 20^th century”, and they are in desperate need of a rebrand for the new millennium.  Certainly the original aim of Lloyd George to provide a few years of well earned rest and recreation for 70 year olds following a lifetime’s toil does not match with today’s possibility of the retirement period lasting almost as long as the working life that has to pay for it.

The pensions model as we know it would appear to be broken. New ways of thinking are essential if we are to reach the stage where pensions will occupy our minds more than sex does with sufficient wherewithal to enjoy our twilight years. The evening spent with Financial Director magazine was a valuable step in the right direction.

Wanted – FDs with a vision

John Vincent, co-founder of Leon Restaurants  and head of Vasari Global, is frustrated by empty companies. In a recent blog in Management Today  he railed against zombie businesses that focus on share price with little or no concern for people and society.  He believes that companies need to have a sense of mission beyond the share price, or they won’t last.

I can relate to that.  There is nothing worse than a company that has no purpose other than to make money. Indeed it is clear that a business that pursues profit without any thought for the way that it does so is unlikely to be sustainable.

But hang on.  Apparently I am not supposed to think like that.  I am a finance director.  It seems I don’t get this vision thing.  I am a process guy who likes nothing better to wallow in the numbers and cut “unnecessary” costs.  That is apparently why FDs do not make good CEOs.

Balderdash!  Good FDs are good precisely because they do get this vision thing.  They can look beyond the numbers and appreciate the difference between cost and value.  They do understand how wealth is created.

However they also know how easily it is destroyed.  Indeed there is an argument to say that some CEOs have too much vision and that a little focus on the numbers would not do them any harm at all.

The truth is that a good CEO is a good CEO regardless of his or her discipline.  They articulate the vision, support the processes, engender trust and ultimately create wealth.

Actually I do have a vision.  It is of a business that I have helped to know where it has been, know where it is going and know that it has enough fuel in the tank to get there. It may not be bright and fluffy, but it is reasonable and achievable, and has helped a number of CEO “visions” succeed.

The value of “experiences”……

The truly depressing statistic that emerged from unemployment figures  released last week was that the level of unemployment for 16-24 years olds had almost reached one million. This growing number of NEETs
(Not in Education, Employment or Training) is a national tragedy in a number of ways.

For the hard pressed Generation Xer  though, struggling with pressures of family responsibility, job insecurity and collapsing pensions, the trials and tribulations of Generation Y  may seem of little concern, especially when they are constantly told it is down to them to adapt to the values of this generation rather than the other way round.

Indeed it is fashionable to claim that school and college leavers and graduates attempt to enter the world of work with little or no concept of what is required regarding skills, discipline and timeliness, and with more interest in what the job can do for them rather that what they can do in their job. There are glib suggestions that a haircut and a makeover are all that is necessary to turn things around.

All this is extremely unfair on young people. They are not stupid.  Many are very entrepreneurial in their own way. They recognise trends. They can react quickly. They often start their own businesses. They can think the unthinkable. They may suffer from lack of conventional “experience”, but the most tech savvy generation ever already have a wealth of “experiences” to draw on.

The growing NEET problem is clearly not all down to employer attitudes. Young people do need to be more aware of the challenges facing their elders. Family environments and educational establishments have to do a lot more to encourage the right sort of thinking and attitude. Initiatives such as Surrey Young Enterprise , which are excellent ways of engaging young people with business and commerce, need to be strongly supported by business and government alike.

Yes, it is not easy in a world where it seems more and more people are chasing fewer and fewer opportunities, but opportunities are often created in adversity, and finding ways to tap into the talents of an increasingly forgotten generation is surely as good a place as any to start.

Business planning – up in the clouds or down to earth……?

The two major news items of the moment, Nick Clegg’s apparent triumph in the televised election debate and the volcanic cloud that is currently playing havoc with the skies have brought to mind Harold MacMillan’s alleged quote when asked what was most likely to blow a government off course.

The source of the ex Conservative prime minister’s comment “events dear boy, events” has never been properly substantiated, but nonetheless, it is probably haunting his would be successors now, as all their months of meticulous election planning have had to be put to one side, to deal with these two unexpected events.

Many businesses, not least those involved in air travel, are also having to come to terms with the impact of the Icelandic eruption, which threatens to wreak more havoc on the UK economy than the collapse of the Icelandic banking system. Whether it is key employees being stranded, or the disruption of key transport connections, or the impact on customers and suppliers, companies are having to find solutions to the problems that have emerged.

It is moments like this where the merits of business planning tend to be questioned. “How can you plan for this?” is a common jibe, dug up whenever somebody has the temerity to suggest that their organisation might need some sort of business plan. A lot of this stems from the corporate or government approach to planning, which in many organisations means a political exercise designed to promote or preserve the position of senior executives or civil servants.

The reality is that planning is not just about plotting a single course. It is about preparing for the unexpected. It is about creating a culture within which uncertainty can be recognised and dealt with. Above all it is about producing a framework within which quick decisions can be made to deal with a range of scenarios.

Businesses with robust planning processes will have already started to look at the risks and opportunities that the current situation presents. They will be aware of the resources that they have available to manage these, and will be working out how to deploy them to maximum advantage. In short they will be much better prepared and much more able to survive than businesses that don’t have such processes.

As for the politicians…..

Feeling good – for now…..

The latest business trends survey released this morning by BDO , the accountancy firm, reveals that business confidence  has reached its highest level for four years.  This pretty much fits with much of the anecdotal evidence that I have gleaned from clients and contacts over the past few months, and is a welcome antidote to the gloom and doom that has been prevalent for the last year or so.

But anybody who takes this as being the end of the recession and the beginning of a glorious sustained recovery is being a tad naïve. As the survey itself says, much of the boost in output has been down to companies deciding to re-stock after letting their stock levels run down during the recession, and that a significant, and as yet unidentified, increase in private sector investment is needed to keep any recovery on track.

Many businesses that have cut things back to the bone in response to the downturn are now having to get their stock levels back to a least a reasonable level.  Building maintenance and basic equipment upgrades can only be postponed for so long.  But like the VAT reduction and quantitative easing, these are only going to be one off boosts to economic activity.

UK economic growth is driven by public sector spending, consumer demand, business investment, and export activity.  It is the latter two that are likely to lead the way out of this recession, and given the comments above regarding investment and the fact that global demand is still not exciting enough for there to be a strong expansion of exports, the situation remains fragile.

Add to this the fact that businesses are understandably not believing any pre election pledges about what the parties intend to do, and are waiting for the reality of the post election economic situation and the actions that will be necessary to deal with that, you can understand why I am still cautious about the immediate future.

I still believe that it will be up to businesses to make their own recovery in 2010 (and maybe even 2011), and that the basics of business planning and financial management that many companies have had to revisit during the recession will play a key role in any success they hope to achieve.  There is still a long way to go.

Job Creation vs Job Preservation…again…

It is jobs stupid! As the official election campaign finally gets underway and we prepare ourselves for a month of claim and counter claim, promises and pledges, and of course the obligatory carefully staged photo opportunities, the economy is likely to come under renewed scrutiny as the political parties endeavour to persuade us that they have all the solutions.

It does not require the powers of Nostradamus to foresee that unemployment and job creation are likely to be at the forefront of the electorate’s current list of concerns. However, as touched upon in a previous blog, it remains clear that politicians still do not really understand the difference between job preservation and job creation.

Take the recent car scrappage scheme that has just ended. A great success it seems, in that it apparently saved 4,000 jobs. However this scheme appears to have had a budget of about £400million. Being an accountant, I am obviously not very good at maths, but I calculate that, on this basis, each job preserved has cost the government £100,000.

And there is no guarantee that the 4,000 jobs mentioned above will still remain in the future. As manufacturers and car retailers downgrade their sales expectations for the coming year it is hard to believe there will not be job losses in the sector. All that seems to have been achieved by the scheme is some short term job preservation.

It would have been more worthwhile to have given 4,000 SMEs approximately £100,000 each to see how they would have used the cash. Some no doubt would have squandered to the money (perhaps on a new car or two), but I would like to think that those that did use it wisely would have ended up creating more than 4,000 jobs, and, more importantly, that those jobs would have been sustainable and longer lasting. Perhaps they might even have further boosted the anticipated “green jobs bonanza”.

Anyway that’s my suggestion. The perfect combination – job creation with green credentials. The election’s already in the bag….

An FD’s view of the Budget

Having been inundated with e-mails from various accounting firms providing both the highlights and the details of last week’s budget, I thought I would take a bit of time to digest them all before making any comment. That, and the fact that because of the Easter weekend, the last day to get anything done in the current tax year to mitigate the impact of the new 50% tax rate is actually April 1st.

Of course given that there is an election imminent, any thoughts that I might have could be totally redundant, as could the Chancellor and many of his colleagues. However, as this was probably one of the more SME friendly budgets of recent years, it is worth looking at some of the proposals put forward by the Chancellor last week.

The headline grabbers were the doubling of entrepreneurs’ relief, for those who sell their business, to £2mio, the cut in business rates from October 2010, and the doubling of the annual 100% investment allowance to £100,000. The latter is only a short term cash benefit rather than a subsidy, but very helpful if you were going to undertake that capital investment anyway. If you are only going to do it for the tax break, then the best advice is probably don’t.

There was an extension of the “time to pay” scheme in respect of business taxes for the lifetime of the next parliament (which in the case of a hung parliament may not be that long). This can be a very useful scheme, but its use needs to be used as part of an overall business restructuring plan, and not as a way of delaying the last rites of a failing business. Getting a scheme past the Revenue is also becoming more challenging.

There were a number of schemes aimed at providing loans and investment to smaller businesses, including a new national investment corporation, a new “green bank” and more money for university spin-outs. Reading the small print, many of these new funds are dependent on private sector and European Union funding as well as government money. However, assuming the application process is not too tortuous, these could provide useful funds to early stage businesses.

There will also be yet more pressure brought to bear on the banks to lend, including a “Credit Adjudication Service” who will deal with complaints from SMEs which have been refused bank loans, and who will have legal powers to “enforce its judgements” if credit has been “wrongly denied”. I can’t wait to see this in action, although I suspect the biggest business beneficiaries of this scheme will be the accounting and legal professions.

The elephant in the room for SMEs (and many larger businesses) remains the 1% increase in National Insurance that will kick in from April 2011. However you dress it up, it is a tax on employment, which seems perverse to me given that the economic confidence which comes from having a job will be a vital part of any recovery.

So yes there were some very interesting proposals in the budget for smaller businesses and entrepreneurs but sadly, given the impending election, they are only proposals and will only be implemented if Labour is re-elected. In the end the whole thing was possibly a waste of time, money and paper and maybe the government should have just enacted legislation to enable them to continue to collect taxes.

Personally I am looking forward, if that is the right phrase, to a proper budget once the election is out of the way, regardless of who wins, so I can start planning with some certainty.

Crystal Ball Gazing…….

I am often invited by banks to hear the latest views of their in-house economists, and this week was the turn of the Royal Bank of Scotland and David Fenton, Head of Microeconomics. In his opening remarks, David noted that it was St Patrick’s Day, and he hoped that the Irish patron saint’s ability to explain the complexities of the Holy Trinity through the three leaved shamrock would rub off on him in his efforts to explain the current economic situation in simple terms.

By and large he succeeded in his aim. He said that the recovery did start in the fourth quarter of 2009, but he felt that growth was likely to be sluggish, with the economy likely to take about 5 years to return to its 2008 peak. Growth had previously been driven by consumer and government spending, and a sustained recovery would depend on some rebalancing back to other areas of the economy, such as investment and export.

He said that the recent trade figures may have made disappointing reading, but export led growth requires global demand as well as currency depreciation, and with the pound unlikely to return to its more normal levels until some time in 2011, there was still time for this to have an effect.

He noted that the consumer was still in saving mode. Historically for every £100 earned, £4 was saved and this had currently risen to £7, a far cry from the days when the consumer was apparently spending £104 for every £100 earned! How this would change would depend on employment and interest rates, and he did not see the latter moving up again until well into 2011.

Sector winners were likely to be manufacturing and construction, although these will be coming off of a very low base, while sectors such as hotels and restaurants and health and education were likely to remain sluggish. Geographically London, the North West, East Midlands and East of England will be leading the way, while the South West, Wales, Northern Ireland and the North East will be lagging behind.

All in all a timely reminder of where we are at present, and the continuing uncertainties and risks that face the UK economy. This was further backed up by this week’s unemployment statistics, which showed a drop in both employment and unemployment!

Notwithstanding the above, a recovery of some sort has clearly begun, although given the economic stimulus that has taken place it would be very worrying if it hadn’t. Sensible businesses of course will not be relying on a general improvement in the economy to move their business forward, and will already be out there creating a recovery of their own.

Fundraising made simple…..

Tinchy Stryder, who is apparently something big in the pop world these days and therefore a suitable role model, has been advising young people to invest and save wisely. I think this is a great initiative, and personally believe that lessons in business and finance should be compulsory in all schools from as early an age as possible (as apparently does Ed Balls). However, what particularly struck me when reading about this, is the fact that he partially financed his debut album by selling clothes.

In a world where everybody from pop stars to business people seem to be looking for somebody else to fund their dream, it is a timely reminder that the best way to generate cash to finance investment is to sell something at a profit and then make sure you collect the money that is due to you.

There are countless stories of entrepreneurs who have held down two or three jobs to raise the necessary funds to finance their dream and then have “bootstrapped” (i.e. used funds generated from their own business operations) their way to fame and fortune. The Beermat entrepreneur, Mike Southon, is a big fan of this approach, and it certainly saves the time and hassle of trying to find, and negotiate with, potential investors. Such an approach will require sound and disciplined financial management, but it does mean that you will have more control over your own destiny than if you allowed external involvement in your business.

I know this sounds glib, and yes of course some businesses do require significant development capital which can only be acquired through outside investors. However, I do think that some entrepreneurs spend too much time obsessing about how to raise money and lose sight of the fact that they ought to be thinking about how they should actually be making money.

Business is not meant to be easy, but it is simple, and perhaps business people of all ages could benefit from learning from Tinchy Stryder’s approach to financing their dreams.

Taxing Times.....

Nobody likes paying tax. There it is. A bald statement. Oh people will tell opinion pollsters that they would happily pay more tax to improve services that they value, but in reality anybody fighting an election based on a message that more tax is a good thing is not likely to be holding the keys to No.10 Downing Street any time soon.

Yet like it or not, and regardless of who wins the next election, we are all likely to end up paying a lot more tax. National Insurance is due to go up in April 2011. It is highly likely that VAT will increase. There is also talk that Capital Gains Tax (CGT) will have to go up as well due to the disparity between the new higher rates of tax and the current 18% level of CGT. This will no doubt fall disproportionately on entrepreneurs, and provoke an outcry similar to that which followed the curtailment of the 10% taper relief for business assets a couple of years ago.

The Tax Advice industry is currently in overdrive finding ways of mitigating the impact on their clients of the new 50% rate which is being introduced from April 2010. And yet the retrospective nature of a recent court case relating to the reclassification of a long time “non dom” has caused many advisors to wonder whether even giving solid advice based on how tax law is currently being applied will be of any use if the Revenue decides that its own interpretation at the time was wrong and seeks to go back and correct matters.

It would appear that even with frighteningly detailed tax legislation in place, court cases will turn on specific facts, and the current HMRC view of those facts, and there is no guarantee that this view will be consistent.

HMRC are effectively operating as if there is a general anti avoidance provision in place, having cleverly blurred the boundaries between legitimate and legal tax avoidance and illegal tax evasion. Not only are they challenging the more imaginative schemes that have been specifically devised to avoid tax, but they are also looking to attack what was hitherto regarded as sensible tax planning.

Added to all this is the argument that the Directors’ Duties under the Companies Act 2006 require them to minimise their tax liabilities where possible which will make taxation issues even more of a burden for company directors and owners to deal with.

The UK already has a horrendously complex tax code with pitfalls galore even for those who do their very best to comply. Throw in the impact of uncertainty generated by HMRC’s attacks on tax avoidance, which could then potentially be applied retrospectively, and you are setting the scene for an era in which the tax lawyers are likely to be the main winners.

Taxing times indeed……

Work? Well if you insist…….

A couple of interesting reports caught the eye this week on the future of work and employment.

The first from the New Economics Foundation suggested that the working week should be cut to 21 hours , saying that this would help boost the economy and improve quality of life by easing unemployment and overwork. They admitted that people would earn less, but said that they would have more time to carry out worthy tasks.

I am sure most entrepreneurs when they heard about this initially thought “21 hour days – that seems about right” but no, the authors really were suggesting that 21 hour weeks should become the norm, with a few additional hours no doubt to carry out some worthy tasks.

The second by Friends Provident suggested that by 2020 we would have an elite group of knowledge workers who, due to the their scarcity, would be able to demand higher salaries, better benefits and a greater degree of professional fulfilment. However, we would also have a growing underclass who would face poor prospects and limited expectations, which could leave UK plc facing a serious skills shortage.

Clearly working life is changing for many of us, and it is interesting to note that more and more young people are looking to control their own destinies, and expressing a desire to set up their own businesses. However the skills question keeps cropping up, and I suspect that personal development will need to remain a priority however many hours we work a week.

Given the above two reports, it is interesting that much of the comment surrounding the unemployment statistics for January focussed on the issue of underemployment, and how measures such as part time working had effectively kept the headline numbers down. Underemployment is one of the big issues of this recession, and many of the statistics quoted do not include those people who are setting up their own business or working as freelancers. Many of these people are working very hard to establish and market their business, but are underemployed in terms of actually earning real money.

All this reflects the changing nature of work and employment over the last decade, and many of the trends, such as flexible working and people starting their own businesses, will be accelerated by the current economic downturn.

Very exciting stuff of course, but what this move away from traditional employment will mean for the future tax take and our yawning public sector funding deficit is another issue, and no doubt the subject of another blog.

Three sets of books? Well that makes everything clear then…….

I recently read an recent article in Accountancy Age (no please keep reading, it’s not going to be that bad), which railed against the proposals made last year by the Accounting Standards Board concerning the future of financial reporting in the UK . In essence big companies will need to use the full set of International Financial Reporting Standards (IFRS), smaller companies will use IFRS “lite”, and the smallest will continue use the Financial Reporting Standard for Smaller Entities (FRSSE). It is hoped that this will promote consistency in financial reporting and enhance global comparability and understanding of the numbers presented.

Still with me? Good, because here is the bit that ought to concern you.

There are going to be three ways of presenting your accounts, all of which involve theoretical approximations of certain economic situations e.g. financial derivatives, share option schemes, pension, most of which are not relevant to SMEs, and arguably none of which really explain how a business is performing, and what the end cash is likely to be. The last comment is pertinent because, as we all know, the value of any business is based on its cash flows to investors.

This all reminds me of that old story of a certain faraway country (OK you’re not that far away, are you Italy?) where each business used to keep three sets of books. A first set was given to the tax authorities, who would normally return them after collapsing on the floor laughing. They were then given a second more acceptable set. The third set, of course, were the real books used by the people that actually owned and managed the company to run the business.

It seems to be we are all being driven in the same direction as regards company reporting, although this time it is not the taxman being taken for a ride (not intentionally anyway), but anybody who wants to use their accounts to manage their businesses efficiently and effectively, and explain to investors what is really happening.

We will have a set of books which constitute the statutory accounts of the business, which are legally required and used by the wider investor community based on a combination of IFRS and FRSSE. We will then have internal management accounts with key performance indicators (KPI’s) reflecting whichever agenda the incumbent management have chosen to make them look good. Finally, we will have the cash focused set of books which really determine business success or survival, but will probably get hidden from the people who really matter.

As the accounting profession rushes to place emphasis on the former, and in house finance functions focus on management reporting, it does seem that we are all losing sight of what really makes the business live or die.

It is surely our responsibility as finance professionals to report financial issues in as clear and unambiguous way as possible. If we do not then frankly we are not doing our job properly. The message from company owners and managers needs to be clear. Show us where the cash has come from and where it is ultimately heading. Then we can know if the business is worth continuing with or not, and whether you, Finance Professional, are actually adding value.

Britain’s got (financial) talent….

Businesses fail because of bad financial management. And we are not just talking about businesses that go bankrupt here. We are also referring to businesses that do not make as much money as they could have done. Potential world beaters that get overtaken by seemingly less well resourced businesses.

And yet if you look at most business plans or proposals, while they will provide full details of the sales, marketing, creative and operational talents within the team, there is often very little reference to the finance talent that will be required to manage the money, and provide the financial returns that are faithfully promised to potential investors and finance providers.

In the heady atmosphere of developing an exciting business idea, it seems that financial management is almost an afterthought (as opposed to finance, which of course is seen as vitally important, especially when it is provided by somebody else).

I can recall all too many instances where financial management skills have been reluctantly brought in at the last minute in an attempt to avert a catastrophe. I say reluctantly, as the management still seems to want to haggle over the cost, as if you are a burden rather than the one thing that stands between them and financial oblivion. And yet this is the same management that has probably splashed out vast sums on the other talents in the team (and themselves) with almost carefree abandon. That is of course until the money has almost run out.

So entrepreneurs, if you want the money men to be interested in you, and achieve the best result for yourself, you need to make sure your have somebody in your team at a very early stage interested in looking after their money. Britain really does have financial talent – make sure you use it and value it.

It’s All Over Now….Or Maybe Not….

It’s official – we are out of recession , albeit not very convincingly, with growth of only 0.1%. This is of course subject to revision because the Office For National Statistics (ONS) have so far only received 40% of the information that is required to make the necessary calculations. Therefore it could go up (hooray!), or it could go down (boo!), which then means the recession is not over after all.


I am not an economist but growth of 0.1% doesn’t appear to be particularly impressive, particularly given all of the stimulus that has taken place so far, and the fact that we have had Christmas and a pre-VAT increase spending splurge as well.

Anyway time will tell as to where we are statistically, but in the real world there remains a lot of uncertainty, which is not going to go away whatever the figures say.

However something else recently caught my eye, which is a little more concerning, and probably has a greater bearing on our long term growth prospects. According to research from Manchester’s Centre for Research in Socio-Cultural Change (CRESC) the expansion of public sector activities has been the main engine of growth in the economy since 1998, and has largely masked the decline of the private sector .

Quoting from the abstract of their report, their argument is that “the UK has an undisclosed model of using publicly supported employment to cover the continuing failure of the private sector to generate and distribute welfare through job creation”. In essence, according to CRESC, even the increase in private sector jobs over the past twelve years has primarily been the result of public sector activities.

Strong stuff but is it fair? We are all aware of the continued jibes about the growth in public sector “non jobs” over the past few years, but the thought that all those “productive” private sector jobs owe their existence to the state as well takes some getting used to.

Perhaps it is time for the “entrepreneurial” private sector to fight back and show how it can efficiently and effectively “generate and distribute welfare through job creation”. The country certainly needs it to happen.

Cadbury and some "flakey" logic…..

“We can run this better without you!” “No you can’t!” “You want us on the cheap!” “It’s a fair offer!” “Isn’t Isn’t Isn’t!” “Is, Is, Is!” “Oh OK, we’ll pay a bit more then.” “Oh fine we’ll accept.”

And thus another “hard fought” takeover battle limps to its predictable conclusion. A victory for market driven capitalism and an injection of new ideas and energy into the UK economy, or a sad case of yet another key British company being sold into foreign ownership with the inevitable consequences for jobs and investment?

I will leave that for you, dear reader, to decide, although the opposing viewpoints are well presented by John Stepek of Money Week, and Alex Brummer of the Daily Mail.

What I would say is that whole Cadbury issue has been a sideshow, and a symptom of the post war British focus on job preservation over job creation. Of Cadbury’s 45,000 odd employees, less than 5,000 were based in the UK. Whoever had owned Cadbury, it is unlikely that this number would have increased significantly, and it is more than likely that it would have declined over time.

The UK needs to create over a million new jobs if it is to get back to the peak employment levels of 2007-2008. These new jobs are not going to come from businesses like Cadbury. Aside from the public sector (which for obvious reasons is not going to go on a recruiting spree anytime soon), the only way that we are going to get what is in effect an exponential increase in jobs is by developing high growth entrepreneurial companies providing goods and services to growth markets.

To be fair, the government often makes the right noises about creating the right environment for such businesses, but sadly as it is easier to regulate and dabble in showcase schemes, than create a cultural change, that is what tends to happen.

However, we have to accept that the economic conditions of the noughties are unlikely to return, and that if we want to get back to the levels of confidence and prosperity that we enjoyed during that period, then we need a business culture where concerns about takeover battles such as Cadbury take second place to the real issues surrounding job and wealth creation.

I got the Haçienda business blues….

Having ploughed through a number of worthy, if slightly dull, business books in my time it was quite refreshing find one that combined business with another one of my favourite subjects, music.

OK, “The Haçienda – How Not To Run A Club” by former Joy Division and New Order bassist Peter Hook probably wasn’t intended to be a business book, but as it covers the rise and fall of a business venture, including issues such as personnel, management, marketing, finance and internal controls, it does as good a job as any that I have read recently.

I can hear you all saying now “Oh well, it was a business run by rock stars, no wonder it failed. Obviously no planning or review processes or proper management”. Well, no actually, what the book reveals is that they did have regular management meetings, they did prepare accounts and forecasts, and they did do their best to get the right people.

Indeed Peter Hook comes across as fairly switched on in terms of the shortcomings of the business, perhaps not unreasonably so, given that he, as a member of New Order was unwittingly bankrolling the whole thing. Sadly the same could not be said for some of his fellow directors, including the late and very lamented Tony Wilson, whose entrepreneurial zeal created the iconic Factory Records empire, and it was their shortcomings in cost control and cash flow management, along with some external factors such as drugs and crime, which eventually sunk the club.

Yes it was the fact that I consider Joy Division to be the best group ever to emerge from Manchester (it’s a generational thing – other people will cite The Hollies or 10cc or The Smiths or The Stone Roses or Oasis – no doubt Delphic who have been placed third in the list of the BBC’s Sound Of 2010 artists will be somebody’s choice in the future) that drew me to the book in the first place, but given that the history of the modern music business has many excellent examples of entrepreneurship, it was a valuable business case study in its own right.

Meanwhile Peter Hook is clearly a glutton for punishment – he has just announced that he is opening a new live music venue at the old offices of Factory Records in Manchester. He says it will differ from the Haçienda, and he aims to make money this time. Right. Well good luck with that one then Pete….

2010 and all that

So what will 2010 mean for business? Yesterday, in the first day of trading this year, the London stock market moved strongly up with the FTSE reaching 5,500. This buoyant mood was apparently driven by new optimism about the strength of the economic recovery, which seemed to be backed up by a number of positive economic indicators. Two examples of this were manufacturing activity, which accelerated in December, and unemployment, which is now forecast by the Chartered Institute of Personnel and Development to peak at under 3 million. Even CFOs appear to be in a confident mood. Then yesterday came the news that John Lewis and Next had achieved impressive trading performances over the Christmas period.


Anything that creates a “feel good” factor and improves business confidence can only be good for business prospects. However this optimism has to be tempered by the opening salvos (for this year at any rate) in what is likely to be a very long drawn out election campaign, with all the uncertainty that brings. Whatever politicians might promise, and whoever wins, there is going to be an unsustainable gap between government income and expenditure, which means tax increases and spending cuts are inevitable. Even the star retail performers above are preaching caution in their outlook for 2010, something which the disappointing figures from Marks and Spencer seems to bear out.

We remain of the view that businesses will not be able to be rely on economic recovery to achieve better results in 2010, and will need to put in place their own plans and initiatives if they are to move forward. However, good news can only help, so let’s keep looking for it and highlighting it wherever we can.