Matt on the Economy – My Update- March 2010

I think we’ve come to a fork in the road; we now need to take difficult and painful actions to sort out our enonomy, and do one of two things:

1. Spend less, Save More.
2. Inflate our way out of the crisis (Interest rates will rise along with inflation)

It’s unlikely in my opinion that politicians will take the first option, especially when an election is heading our way; nobody wants to be the bearer of bad news.

What Britain needs now is strong leadership and a strong effort to reduce the excess of the past(debt), encourage savings, tackling deficits, encouraging investments and put a strong effort on helping small businesses to lead us out of this economic equivalent of a dogs dinner.

China is moving rapidly, India is growing at double digit growth in terms of GDP, and Brazil is closely behind.  I don’t think we realise the implications of their growth. We need to save more, whist encouraging those growing countries to spend more.

We have to re-skill and retrain many people in our economy (including people in the likes of the Steelworks in Teesside); we need greater flexibility and investment in small businesses.

We need to get the banks lending again (not just the lip service they do to boost the stats, but risk based policies perhaps guaranteed by the government), but I’m not talking about the enterprise guarantee fund, that many small businesses cannot access, nor have the will or time to tackle the mounds of red tape it requires.

The Future

Politicians are fully aware of the scale of the problems but simply won’t admit it; they will water down any negative messages on the run up to the election. They are very unlikely to tell us that taxes are going to rise heavily; spending will be cut, and a possible “slash and burn” approach to publish spending all needs to be considered at some point. Politicians are very likely to hide us of the realities of the economy till after the election.

Political Winners

Whoever wins the election, we are going to get some nasty surprises and in fact, we should, as once the election is out of the way, we HAVE to deal with the realities of this crisis. I think if the conservatives win, they will say “it’s much worse than we thought” and possibly use that to create “slash and burn policies”

If Labour win, we’ll likely have a sterling crisis and a world wide loss of confidence on our ability to re-pay debt. Right now the election is getting in the way of doing what needs to be done. The government needs to act sooner rather than later.

Other counties are catching up and will add pressure to our growth. Making too bigger cuts too early could lower the chances of an economic recovery in the medium term. Growth will increase tax receipts and this will of course mean we won’t need to borrow as much.

Things are likely to get worse sadly, the recovery so far has been disappointing (but expected), and it’s likely there will be another crisis, both on sterling and possibly a double dip recession.

An idea could be to look at the Laffer Curve (Arthur Laffer), which asserts that, in certain situations, a decrease in tax rates could result in an increase in tax revenues.

I think overall, it’s not just the policies you pursue; in fact I believe that the government needs to show leadership that commands confidence.

What’s happening now and are we in recovery mode yet?

I don’t think we are in recovery just yet, the economy is very weak, and we are just about bouncing along on the bottom.

In the private world

I think that the bigger stronger business are saving their cash and doing what many households are doing, paying off debt to lower their exposure – new investment will wait until they can see a light at the end of the tunnel.

Smaller businesses are either in survival mode or are reducing their debts with any profits they are making. The weakest of businesses out there (if they are still going!) are simply on “life support” from their existing banks , and those banks don’t want to become the scapegoat for pushing them into administration – specially all at the same time!, plus politically, it would not look good right now.

In the public world

The possible next government (Conservatives) have announced that they will be making tens of thousands of state funded workers redundant.

Public sector workers who could be spending are nervous and putting money away in case it is them that are redundant next year.

What strange times we live in. There is a light at the end of the tunnel – honest!

The Importance of Evidencing Business Transactions

Ever made a phone call, been in a meeting, – discussed price, details, commercials, and then later regretted not evidencing what you’ve just done?

Let’s face it, we’ve all done it.  Agreed something either over the phone or in person, then realised how you would prove it if it all went pear shaped.  It’s something that has happened to me a few times, and it’s as lesson learnt when it does.

“You said its taxed and MOT’d – no I never, -I never said that”

or how about “you said I can have it for £999 pounds, – yeah if you signed up this week – oh you never told me that – yes I did“

I cannot stress how important it is to obtain evidence of every transaction you do.  If it’s important, you need to get evidence to prove it.  I’ve just come from a business which is operated by two young guys selling services to other businesses.  Everything they did was “gentleman’s agreements” and handshakes, however just now; it’s all blown up on their face.  Its now one big argument about who said what, when where and why.

There is not even one scrap of paper to prove anything was said or agreement or on what term – what a mess!

Remember – its your responsibly as a director to keep records of your business transactions.  Without them, you are asking for trouble.

Some people think its funny walking into their accountants two weeks before their year end with a bin bag full of receipts, throwing them at the accountant and expecting a full  set of account to be prepared – trust me these guys never even had the bin bag, never mind the receipts!.

They’ve given me permission to talk about this on my blog, but to keep their names quiet (to protect the innocent!).

According to HMRC, you’ve got to keep your records for up to 6 years, or get hit with a £3000 fine!

Basic Records You Need to Keep

Your basic records will normally include:

• a record of all your sales, with copies of any invoices you’ve issued
• a record of all your business purchases and expenses
• invoices for all your business purchases and expenses, unless they’re for very small amounts
• details of any amounts you personally pay into or take from the business
• copies of business bank statements

Now….my advice does not come free, hopefully the stuff above has been useful, however you must now let me on my soap box for a moment while I tip my own business (in fact you might find this useful as well)

Record Your Phone Calls!.

In the old days, recording phone calls needed boxes, wires, phone systems and a stack of cash along with a willing volunteer to change the tapes when they got full up of your dulcet tones. To prove what you said was in fact correct your volunteer had to wade through dusty store rooms of tapes in the hope of finding your call – provided the tape has not chewed itself up!

These days, you can record your phone calls without half the hassle.  My company provides a service called Record Your Call (see www.recordyourcall.co.uk ) and it allows you to record your incoming or outgoing phone calls without the need of any equipment – bar a phone!

You can use it from any phone anywhere. It’s simple to use and once your call is complete, download the recording as an mp3 file from the website and your done.  It costs 10p per min to use and everything else is free.  No setup costs, no monthly costs – keep your hard earned cash in the bank and don’t tie it up on expensive IT equipment that’s worth 50p the day after you’ve walked out the shop.

You could use Record Your Call to record important business transactions between two people or conference calls.  Each recording can be stored on your PC; giving you hard evidence that could be used in a court of law should it ever be required.

Consumers are using it to record calls to gas companies, local councils, or even their accountant – to prove what was said, promised, or committed.

Businesses are using it to record calls to suppliers, customers, tax office etc – to not only prove what was said but for quality and staff training purposes.

Please let me know your thoughts on the service and if you find it useful – www.recordyourcall.co.uk

Recession goes on – time to flee the sinking ship?

Not really. We might be in a recession still, however this is quite probably the beginning of the end (of the recession!)

Yes the economy shrank 0.3% between July and September and we are living the longest recession since records began – it’s a historical moment – No wonder some economists have stopped calling it a recession, preferring to use the even gloomier label ‘depression’., but remember every dark cloud has a silver lining.

There has never been a better time to start a business, buy certain assets, or expand your existing one.

Expanding your business during a recession

During a recession people’s main motivation is to save as much money as possible, and while the recession is gradually weeding its way through your competition you want to be able to jump in and pick up many of the pieces of the fallout as possible.

I’m working with businesses that are keeping a very close eye on their competition, and when some fail, they are going in and picking up assets for next to nothing. I’m talking about 7-10 pence in the pound sometimes, so look around; see what’s happening in your market, can you expend your business for less? Can you take advantage of cheap assets that could bolster your business, add assets to your balance sheet, and give a handsome return by profiting out of the mess we are in.

Remember though, buying property from an administrator is a risky business. Here are some of the things to keep in mind:

• Vacant possession of a property asset will not normally be guaranteed and the cost of clearing terms left in the building should be considered.

• Very limited guarantees or warranties regarding the assets will be given undertaking proper due diligence to reduce risks is advised; if it blows up when you plug it in – don’t go expecting your money back – “sold as seen” anyone?

• There may be assets that appear to be a part of the property being sold which do not in fact belong to the insolvent business – watch out for retention of title clauses in supply contracts; someone could come knocking on your door wanting their property back!

• The Administrators act only as agent for the insolvent company and will accept no liability for errors or omissions. If they get it wrong – it’s your problem!

By the way, I loved the quote from Mervyn King from the bank of England:

“Never in the field of financial endeavour has so much money been owed by so few to so many”

Puts things into perspective really.