Cotswold Life talks financial: Hazlewoods
PUBLISHED: 17:21 26 September 2011 | UPDATED: 20:03 20 February 2013
AS ONE of the UK's top 40 independent chartered accountants and business advisers, with over 200 staff in three offices across the Cotswolds, Hazelwoods has a clear perspective on how business is coping in the current economic climate.
AS ONE of the UKs top 40 independent chartered accountants and business advisers, with over 200 staff in three offices across the Cotswolds, Hazelwoods has a clear perspective on how business is coping in the current economic climate.
We asked David Williams, head of the firms Corporate Services Team to give his views:
What are the most pressing issues facing businesses?
We act for a broad range of clients in a number of sectors and surprisingly lack of finance and working capital is not the most pressing issue. The businesses struggling with a lack of finance are largely the same as before the downturn. Most businesses are focusing on retaining gross margins and net profit in the face of increasing inflationary pressure and competition. Commodity prices have increased significantly and wage inflation is creeping back. Businesses are still cautious about passing on increased costs to customers especially in competitive tender cases.
Are banks lending?
They are but there has been a seismic shift in how they lend, the terms and conditions attached and the rates at which they lend. Banks want quality, long established businesses with good track records and proven management.
Before the banking crisis, some banks acted as investors, providing quasi equity funding with little security and funding being predicated upon forecast cashflows and profit forecasts. This should not have been their role.
Banks were lending money at 1.5-2 per cent over bank base for good solid businesses. This is now nearer 3-4 percent on new money. If the amounts involved are small or there is more risk, this rate can double.
It is also difficult for a business to obtain finance where the debt is contractual. For instance, a builder rendering an invoice to a customer for construction work hoping that the bank will take this as security against an overdraft, is unlikely to receive finance because the bank will be fearful that if the business fails the customer will not settle the outstanding debt claiming that the contract has not been fulfilled.
On what criteria are they lending?
Traditional overdrafts are being replaced with invoice discounting, factoring and asset finance such as chattels mortgages or hire purchase/ lease purchase/finance leases and a raft of more complicated financial products. These lines of finance are more expensive but they provide banks with more security and in my experience work well with growing businesses.
Which industries/sectors are doing well
The aerospace and defence sectors have performed well even during the downturn. However there will be a financial squeeze on businesses reliant on government defence contracts as global defence spending is reigned back.
Construction still faces big challenges but most businesses have their house in order to cope with reduced demand and tighter margins. Looking at our broader client base most businesses are profitable, some surprising their owners with the quality and strength of their results.
However they all have one thing in common: They dont know how long this situation will last and lack visibility and confidence, not helped by the prolonged sovereign debt crisis.
On a positive note I would say that business sales are on the increase. Three of my larger clients have sold out to larger corporates at attractive multiples of profit. The clever businessman knows when to get out, either because they cannot see profits continuing to increase or have taken the business as far as they can and for its future prosperity a strategic sale is required.
For some it is just plain old retirement. Most fall into the first two categories; entrepreneurs are not motivated by retirement, they go stir crazy!