Zombies

Back in mid-2007 when the recession was first mentioned, many thought that there was going to be a significant rise in insolvencies.  We are now approaching the end of 2012 and there are some signs appearing that indicate the end of the recession is close, so statistics don’t seem to reflect those initial 2007 thoughts, or should they?

The professional body of insolvency, R3, has recently stated that there may be as many as 146,000 businesses in a Zombie state.  These companies are teetering on the brink of insolvency.  They seem to be able to survive, not quite failing and certainly not thriving.  They are just about able to pay the interest on their debts but find it a struggle to pay off any of the capital.  About 8% of UK businesses are running on an empty tank and have little left in reserve.

HM Revenue & Customs introduced time to pay agreements. Interest rates were lowered and remain low.  Banks have been reluctant to force the issue and call in their debts.  This is the cause of the Zombie phenomenon.  But the danger is a sudden change of circumstance – a rise in interest rates, an increase in supplier costs or the loss of a major customer.  Any of these changes, or similar, will tip the Zombie company over the edge, probably into insolvency.

So what are the main features that define a Zombie company?  Here are some;  1 – the need to negotiate and renegotiate payment terms with suppliers; 2 – a daily struggle to pay debts as and when they fall due; 3 – paying the interest on debts but not the capital, and 4 – the distinct possibility that they would be unable to service debts at all should interest rates rise.

A Zombie company has more reason than most to be worried about the economic future. Sometimes there’s no point in trying to avoid the inevitable.

Financial Health - Back to Basics

Whilst I was listening to the radio this morning one of the pundits was waxing lyrical about the Olympic feel-good factor and its boost to the economy, with more jobs being created, people enjoying themselves and spending more.  There may be something to this, but as I have mentioned before, the economic benefits are only likely to be experienced by people and businesses in connection with the games.

So, overall, is everything really that OK?  Or, are many still feeling the squeeze?  Businesses and individuals have been under increased financial pressure for some time now.  The poor state of the economy has had an impact on us all in one way or another.  How is your, or your business’s financial health?  It may well be fine, but if it’s not, how bad is it and what can be done to sort it out?  Is it time to get a financial health check?

What to look out for

Common sense will tell you when something is wrong, for example are you experiencing cash flow issues?  Are payments to suppliers being delayed?  Are you finding more, and increasingly elaborate, excuses to delay payments to suppliers?  Are you spending less time dealing with customers and your orders drying up as a consequence?  Are up to your overdraft limit, looking for alternative funding?  Is the tax man chasing for late payments?  Or have you been on a time to pay arrangement?  These are just a few signs of a struggling business.

At this stage many people will hope that the situation will improve of its own accord.  But, burying your head in the sand will guarantee that it won’t.

What can be done?

Almost all financial problems can be overcome if they are spotted soon and tackled quickly, with the business turned around and put back on an even keel.  It may be that a more formal procedure is required, but the business could still be saved and live to fight another day.

The secret is not to allow the problem to fester.  Unless it is dealt with properly and swiftly it will only get bigger and much worse.

If you or your business needs a financial health check HJS Recovery are specialists in this sector.  

A Greek tragedy

Last time I wrote I mentioned that with the Olympics coming to town it is likely that during this summer UK holiday destinations are going to be affected, with some (those connected with the Olympic events) gaining and others losing out.   To overcome the potential slump it seems likely that those in the holiday industry that are likely to be affected will have to offer reduced rates to holiday makers.  The question was; will 2012 be the year that we see an increase in those enjoying a bargain holiday at home? 

Then (and not connected with their historical Olympic links) along came the Greeks.  As we all know, the Greek economy is in meltdown.  It is in a deadlock with regard to forming a new government and is reluctant to accept the austerity measures that have been agreed previously.  This is having a huge impact on the Eurozone, which has seen the value of one Euro drop to £0.80p.  This has a knock on effect on the UK’s economic recovery.  The Bank of England has now cut the UK’s growth forecast for the year from 1.2% to 0.8%.  It is clear that if Greece were to leave the Euro, then matters in the Eurozone would worsen even further, with an increased impact on Britain’s economic recovery.

Coming back to the above comment on the UK holiday industry, it is clear that with the weakening Euro a holiday in Europe will become more affordable.  Will a holiday at home be a bargain after all? 

Olympics and Summer Holidays

With the Olympics just around the corner it is likely that during this summer UK holiday destinations are going to be affected; some will benefit and others will lose out.   Clearly the parts of the country where Olympic events are to be held will reap the benefits of additional visitors, both from oversees and the UK and will be able to charge premium rates for the duration.  So, will the rest of our UK holiday destinations be worse off?  It’s hard to tell.

In his recent budget speech the Chancellor advised that the Office for Budget Responsibility has confirmed the Britain is likely to avoid a technical recession, but it is still evident that for many people purse strings remain tight and the prediction for UK economic growth this year is low.  It seems, therefore, that there will be many hoteliers, publicans, resort owners and others in the leisure industry that will be facing a slump in trade this summer.  To overcome this I expect that there will be many price reductions to attract visitors to non Olympic resorts and plenty of cheaper holidays to be had.  Will 2012 be the year that we see an increase in those enjoying a bargain holiday at home?  We will have to wait and see.