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.

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……

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.