09/04/2009 by info.

People are not very good at predicting economic cycles or the depth of those cycles, including supposed expects in their fields.

Sometimes policy makers are the ones who make the misjudgement, the Chancellor of the Exchequer on 24 November 2008 predicted that the growth in the economy in the UK would start in June 2009, now he tells us that he was wrong in that prediction and the depth of the recession was worse than he thought.

A recent report in America suggests that 20% of people think that the economy will improve in the next few months up from 8% last month. Of course the report could have said that 80% of people think that things will stay the same or get worse!

Is this however a good indicator of a recovery? These surveys are good at recognising bandwagon effects nothing more, as if 100% of people think that stocks and shares will increase in price then it will be a self-fulfilling prophecy, as increased demand will mean that prices WILL increase, its simply laws of supply and demand.

Both corporate and personal balance sheets are improving. Evidence suggests that people are repaying debt rather than spending money increasing their net worth, and when they feel confident that the economy has bottomed out they will start to consider spending or investing again.

The majority of us however will miss the boat, as the people who called the bottom of the property and stock market, and dared to invested at that time, will be the ones who benefit from the bandwagon effect not those who waited for indicators to show them that it was the right time to invest.

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30/03/2009 by info.

Buyers often ask me what is a good business to buy? The answer is, a good business to buy is the business that suits you in the long term. A business is for life not just for Christmas, a play on a now famous slogan.

The question they really wanted to ask is “What is a good business to buy in a recession?” as they don’t want to have the risk of failure.

Ok so here are a few ideas after 30 minutes thought on a Monday morning:

There is a saying that there are only two certainties in life, death and taxes, so the first category would be to buy a business that regardless of the economic climate people will always need. On the basis that if someone has to eat sure as hell someone has to sell.

Next is to look at the way a person changes their behaviour when they are afraid, so buyers will be more driven by fear than pleasure. So look for the business that reduces peoples fear and loss.

People reduce discretionary spending and substitute that spending. So they may not buy a new car but use a proportion of that money in the maintenance of their existing car.

People may not be able to carry out their preferred plans so look for alternatives, so if they can’t sell their houses they will look to rent them.

Certain people will be in distressed financial situations - due to debt for example, so look for a business that helps or is associated with this distress.

I often look back 20 years ago at Films and TV programmes at the technology that was in use then, how they have changed in such a short period of time. So you should be looking at existing businesses and seeing how new applications or technology can improve that business.

You should always be looking for products that are on the upward slope of their Product Life Cycle, there is still growth in that market. And if you are really just looking for something to do before the economic boom starts, perhaps you can look for products with short life cycles, in other words a fad - to make a quick killing.

Of course some people will never start in business due to fear, the pure fact that you have taken that step means that you have a much greater chance of being successful in a recession. “We only have one thing to fear and that’s fear itself” as FDR said in his inaugural address.

So what are you waiting for there’s plenty of opportunities out there!

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18/03/2009 by info.

Life and Business Coaches are taught that if someone makes a negative comment that that comment should be reframed. Reframing is simply changing the meaning of an event or experience. The same way that placing a picture in a different picture frame somehow changes the look of it.

So today it was announced that unemployment has passed two million barrier in the UK. Now I am not suggesting that this is not a stressful situation. However perhaps being made redundant is a blessing in disguise for some of those people, allowing them to move on from a job that they hated and towards something much more rewarding such as running their own a business.

Speak to thousands of self-employed people and business owners and they will tell you that being their own boss was the best thing they ever did. Just because someone may have been made redundant at the age of 55 it doesn’t mean to say that their working life is over.

In fact the vast majority of business buyers are between the ages of 45 – 55 exactly the age when employers start to discount them in the recruitment process. This age group however has significant life experiences and plenty of transferable skills, together with the training that is offered by a seller of a business; this often equals a recipe for success.

So for anyone who has recently been made redundant the best thing you can do, if you have funds, is to think about of buying or establishing your own business. At least you can then be guaranteed that you will never be made redundant again.

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06/03/2009 by info.

Imagine you are driving along the motorway, the road is clear and you can drive safely at 70 mph without any trouble.

Now image trying to drive at that speed in rush hour traffic, what often happens is that someone gets concerned about whether they are too close to the car in front, they apply their brakes, you are not sure about how quickly they are slowing down and you apply your brakes. This creates a pulse and leads to all the cars on the motorway coming to a halt.

This could be used as an analogy for the recession, as there were simply too many businesses trading, leading to inflation. The brakes were applied and everything stopped, in fact there has been a big crash.

So now the Bank of England has further reduced base rates and has decided to take the route of quantitative easing. Quantitative easing without being too technical is the creation of new money out of ‘thin air’ by a central bank, its injection into the banking system, which allow the bank to technically lend the money to others. It is the same as creating another lane on the motorway.

It is now hoped that all of the cars on the road can continue along their journey simply by some of them taking the new lane on the motorway, or having access to this new money.

But wait it was the banks who were policing this motorway in the first place, the motorway grinded to a halt because they gave money for everyone to buy old cars, and then feasted on hamburgers and pizza on the hard shoulder out of their profits.

It these same banks do not lend this new money, and let people move into this new lane then the economy will remain blocked.

What is needed is for the banks to use a great deal of business acumen, being able to recognise the businesses that should survive and the businesses/old cars that should be scrapped.

Do the chief executives of the banks and your bank manager have this business acumen? To recognise a good business opportunity when it is presented to them? Some of them couldn’t even run their own business. So we will see.

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12/02/2009 by info.

I will make a number of predictions with the risk of appearing a doom monger.

1. Some larger companies will be desperately trying to sell smaller subsidiaries, or they will be looking for buyers themselves in the next month.

2. There will be a number of well-documented failures of businesses in the next two months.

Why is this?

Well it’s because the quarter day rent payment will be due for payment on 25 March, and these companies will be well aware that they don’t have the money to pay their commitments. Especially given the weather over the last month or so, which will have affected these businesses cash flow.

So you now know this is going to happen we can all get on with our lives. But for the vast majority of people it will scare them and it will change their behaviour in the short term.

I have noticed over the last few years that when bad news is reported the number of enquiries for people wanting to buy businesses either stops or slows down, as people get fearful and worried about their person circumstances. A few days or weeks later enquiries pick up again.

The news media will report these events and report historical statistics and it will probably affect your business in the short term as well.

We have however already lived through these events and survived; your business is still trading and orders are still coming in, but still psychologically we get scared and delay long term planning issues.

Which is why the reporting of bad news is a self-fulfilling prophecy, it is a primeval response to impending danger, and if you stop running your business due to potential threats the chances are that it will affect your profitability.

The reporting of good news therefore is important, as the more good news stories people hear the more they will be inclined to make that large investment in the knowledge that they will not lose money.

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04/02/2009 by info.

There are plenty of examples of famous people being misquoted, resulting in them being known for quotes they actually didn’t say.

In politics examples of this are Jim Callaghan’s “Crisis What Crisis” and more recently Gordon Brown’s “British Jobs for British Workers”. What Brown actually said was “It is time to train British workers for British jobs that will be available over the coming few years”.

But that of course doesn’t matter now. British Jobs for British Workers has now become a mantra for protectionism.

We all know that a lot of larger companies in the UK are not owned by British shareholders, O2, P&O, Pilkington, and Rolls Royce may be a few that you might not be aware about.

Perhaps what is not fully appreciated is the number of Non British people who are buying small businesses in the UK. Increasing as a Business Agent I find myself communicating with people who do not speak with a British accent, who will eventually buy a business.

Is it a good thing for the British economy? I wonder what would happen to these small businesses if it weren’t for these buyers. Well, the market value of these businesses would reduce, and perhaps many more of them would close. The wealth would simply disappear.

Plus another consideration is that many of these businesses employ British born people, where would these people be if it weren’t for the foreign-born people buying businesses. A case of “British Jobs with Foreign Ownership”

With the relative weakness in the pound there are bargains out there for foreign investors buying businesses in the UK. If British born people are too fearful to buy a business in the UK at least we still have the foreign born entrepreneur who might be willing to create wealth for all of us.

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23/01/2009 by info.

So the UK is now technically and officially in a recession, this is not news to thousands of people in the UK who already felt that this was happening. But how bad is it really?

The economy fell by 1.5% in the last 3 months however this recession is not so far as deep or sharp as it has been within living memory.

At the end of 1980 the UK’s recession fell by 4.1% in the last quarter of the year, this is nearly 3 times as sharp as the recession now. (This was a deliberate recession caused by Thatcherism and Monetarist policy)

So why do we think that it is currently bad?

Well for some it isn’t bad, there are sectors of the economy that are still doing very well, the supermarkets for example who are still going ahead with expansion.

The businesses that are doing badly are the businesses that are the the areas of discretionary spending. An example of this is the new car market where sales are perhaps down 50% on previous years figures. Here people and businesses are just delaying their purchases, not buying a car now but perhaps doing it next year when they know how bad things are going to be for them.

So the recession is in part a self fulfilling prophecy. But there is a saying if someone has to eat someone has to sell, so sooner or later, car dealers will start to sell vehicles again.

The real reason why it seems so bad is the number of redundancies and closures of larger businesses. However if you look at the UK statistics, the UK had continued growth for the best part of 15 years. So what is happening? These larger businesses HAD geared up for this continued growth and now they are simply adjusting their plans. The ones that ARE in difficulty are the ones that previously financed their growth via debt and are not lean.

What is happening therefore is that these businesses are adjusting their activities so that they will survive.

Statistics also show that recent recessions have only lasted 3 or so quarters, perhaps the next 3 months WILL show the worst results and decline, reflecting what is happening now, however I fully expect a stabilisation in the second half of the year. ( I am not Chancellor Darling!)

So if your business can survive the next 6 months you will be in a position to take advantage of these delayed purchases.

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13/01/2009 by info.

It is a tough environment for retailers however perhaps there are now opportunities for the smaller retailer to take back market share. Here is the reason:

Why have larger chains of retailers such as Adams the children’s clothes failed?

Firstly a number of these chains that have gone into administration, had recently being bought by the current owners and already had large debts, which they could not cover. They were also trading from prime positions in town centres where the rents and rates are huge.

The main reason however is that a small percentage drop in turnover means a large difference in their profitability in pounds.

Using Adams as an example their turnover was approximately £150 million. So a 5% drop in turnover means a £7.5 million fall in turnover, perhaps £4 million drop in profits.

Compare this with your independent corner shop childrenswear retailer, where rents are lower, perhaps they do not have debts and were a 5% drop in turnover from £200,000 may mean a £5,000 fall in profitability.

The owner of the independent store can quite easily adjust their personal or business expenditure to meet this falling short-term profits but the larger chain cannot.

Lets now assume that the administrator closes the local Adams shop to this independent retailer; perhaps there is £1 million worth of customers looking for an outlet. This independent retailer may easily pick up more than £10,000 of this business.

So the good independent retailer might actually welcome this retailing downturn because the longer the recession continues the possibility is that they might be able to pick up business from these fallen retail giants and actually become MORE profitable.

So if a business closes down don’t necessarily look at it with doom and gloom, look at it as a good thing for your business.

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