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…

Antony Doggwiler (don’t call me Andrew!)
ajd@orchardgrowth.com

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….

Antony Doggwiler
ajd@orchardgrowth.com

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. So 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. 
Antony Doggwiler

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.