Finance still critical

I found some interesting research recently that reported on the issue of banks not just refusing to lend but seeking to change original loan terms, which was directly in line with my experience.

One SME business that I am advising approached their bank to extend an overdraft in order to buy out a director and secure succession for the business but found that this request was not only refused but the original overdraft was reviewed and withdrawn.

The results from the Mishcon de Reya survey suggest that this is not an isolated problem with more than half (51pc) of respondents saying that their biggest issue with their lender involved attempts to increase margins on loans, while 41pc identified additional fees.

Clearly there are not enough alternative sources of finance available and we are facing a significant funding shortfall unless non-bank finance channels are opened up to small and medium-sized companies.  This view was expressed by Mr Breedon, who led the government backed taskforce into bank lending.  He also predicts that the shortfall could be as much as £191bn within five years.

SMEs are constantly referred to as the driving force behind the UK’s economic recovery with figures from the FSB suggesting they are responsible for 48.5 per cent of the UK’s turnover but without support they cannot deliver much needed growth.

I hope that the professional bodies and organisations that represent the SME sector will continue to lobby government on this matter and that some of the recommendations made in Mr Breedon’s review will be progressed.  In the meantime our experience is that more and more businesses are now looking into peer to peer lending which, whilst potentially being more expensive is proving to be easier and quicker to implement for smaller SME’s.

Incidentally there was a happy ending for the company used in the example above, after finding an alternative source of finance, their bank  had a change of heart and was able to offer the required extra funding after all, proving that it is always worth challenging the banks decision in these circumstances.

Who will fund residential care as the elderly get older?

There are plenty of statistics available to illustrate that we are all working and living for longer.  Whilst this may at first seem like a good thing there is a consequence on how residential care is funded that was brought home to me when I recalled one of my first experiences as a new treasurer of a charitable residential care home in 1996.

The occasion was a party for a  resident that had reached their 100th year.  We invited friends and relatives and the Mayor called in to make a fuss of the individual concerned. As an interesting aside, whilst at first it was quite rare to have a centenary celebration I have noticed that these are increasingly becoming a regular fixture in our calendar. However at that first centenary celebration I enquired from our staff how long the lady concerned had been a resident at the home and was advised it was a mere 42 years! The thought that at the age of 58 she was put into a care home in this day and age is absolutely unthinkable but I would imagine in those days it was quite the norm.  Without knowing the details, I have always imagined that probably her husband died and the children say “that's it mom, now dad’s gone we will sell the house and put you into a home”.

Since then the world has changed immeasurably in terms of people coming into care and without having the figures to hand I would imagine our average new resident coming in is probably in their late 80’s or even 90’s and when they get to us they do require a very high level of care compared to the basic residential care which I would imagine that lady was provided with all those years ago.

Many care homes now have to ask for top ups as the gap between the amount the local authority is prepared to pay and the economic minimum needed to maintain a place in the home has grown. In reality, the people that bear the costs of these top ups is invariably the children of the resident.  As residents become older and older it is the children who are being called upon to find the top ups and they are themselves retired and pensioners. Bearing in mind by definition, if their parents are being funded, they have not got significant assets of their own so these are not families who have any great expectations of inherited wealth.

This phenomenon is latterly going to be more and more prevalent as we are told that middle aged people today stand a better than even chance of making 100.  These people are likely to go into care in their mid to late 90’s by which time their own children could be into their 70’s, they could even have grandchildren of 58 and above, the age of my first centenary resident when she went into care!

Academies will benefit from innovative and robust financial advice

More and more local authority schools are converting to academies – according to the Department for Education they now make up more than a fifth of all secondary schools – and while the upside is that an academy has greater autonomy, the governing body and management team will be in need of expert financial advice to ensure a smooth transition and effective year-end reporting.

The academies that we have been working with are preparing audited statutory accounts for the first time and have welcomed the strategic advice that we provide in addition to the specific guidance that is needed on the content of the Annual Report and Accounts (ARA).

Clearly regulations have to be met, but the change in status presents a perfect opportunity to review current financial processes and establish innovative and robust systems for the future.

We take a pro-active approach to advice with regard to developments in the sector, helping to identify innovative ways for the new academy to generate income, and presenting ideas so that the ARA is ‘user-friendly’ and readily accessible to the general public so that it can be utilised as an effective reporting and marketing tool.

It’s not just a question of the day-to-day processing of income and expenditure: an academy needs a finance and IT system and business IT solution that can deal with a whole raft of activities, including the production of management accounts, cash flow forecasts, balance sheets, VAT and tax compliance issues.

At Clement Keys, we have specialists in all areas so we can offer advice on key topics such as pensions and VAT.

Academies have to undergo a statutory audit and arrange an audit of pension returns – both to the Teachers’ Pension Fund and any local government schemes to which non-teaching staff belong – our experience in the education sector helps us respond to individual establishment’s needs.

We also have experienced tax and VAT advisors that can advise on liability to VAT and partial exemption as well as perform ad hoc assignments, such as reviewing the use of trading subsidiaries.

Women in the boardroom

Cultural change will put more women in the boardroom

There’s no denying that the bleak economic prospects for 2012 are uppermost in our minds, but one of my personal hopes for this year is to see businesses committing to the cultural change required for more women to make a difference in the boardroom.

Following his Government-commissioned review, Lord Davies recommended that FTSE companies work towards a voluntary target of a minimum of one in four female board members by 2015, yet a report by Cranfield School of Management found that very little progress had been made. 

What I found particularly disappointing was that more than two thirds of the UK’s top 100 companies had not yet decided how they intend to comply with the recommendations. 

This is not only an issue for big businesses, the same situation arises with many SMEs, and it would be fantastic to see change being embraced by all businesses and across all industries.

Whatever the size of the company I don’t believe that a combination of quotas, heavy handed rules and further regulation is the way to create the next generation of women at board level – it simply wouldn’t be beneficial, especially for companies that operate in more gender biased industries.

Research suggests that what typically drives employees to stay in or leave a job is not so much money, as relationships and job satisfaction.  For SMEs, particularly in the current climate, the key to success is surely a matter of finding ways to ensure that talented women are content within the workplace, and this can be achieved at least in part by giving them the opportunity to gain experience and develop the skills required to run a business at the highest level. 

I applaud those companies that are taking this issue seriously and enrolling women onto mentoring programmes, for example, and hope more will follow suit in 2012.  This kind of approach appears to be very effective and I’m convinced it is what we need to achieve a balanced mix of expertise in the boardroom and head off any further talk of mandatory legislation on quotas.

No magic wand but free business advice

There may have been some good news for small businesses in the Chancellor’s autumn statement but there is no doubt that cash strapped SMEs and start-ups still have many obstacles to overcome in this challenging environment.

Whilst I don’t have a magic wand to solve all of their problems I am delighted that Clement Keys is able to offer a helping hand to small business via a free business advice service delivered in association with the Institute of Chartered Accountants in England and Wales (ICAEW).

The Business Advice Service offers local companies a free initial consultation, which could save them money and generate ideas to create more profit.

The service is designed to enable SMEs to source advice on a wide range of issues, such as how to start a business, taxation, financial management and access to finance, so that they come away from the meeting with an understanding of their options and how to resolve a particular problem.

To take advantage of the offer, SMEs and start-ups should visit http://www.businessadviceservice.com/
and follow the initial consultation request button, which can be found next to the Clement Keys entry on the ICAEW Directory of Firms.

Show me the money!

I am sure that many in the accountancy profession are experiencing the same confusion as me over bank lending.

The banks are telling us that they have money to lend and are willing to lend, in the press every day but the businesses that I work with are still finding it very hard to secure any lending from the banks!

The situation may be explained by an interesting conversation that I had recently with the son of a long term client of mine.

He has recently joined a major clearing bank as a corporate manager and been given a portfolio of small business clients and has been told to get on and start encouraging them to borrow money.

The only problem is every application he submits he gets turned down by the bank’s credit committee as not meeting their lending criteria.  He was therefore having an enormous gripe about the fact that he was being squeezed from both sides by his employer, the one side encouraging him to sell borrowing as much as possible whilst the other side is not prepared to authorise anything.

Whilst I would never encourage irresponsible lending, one does wonder if this goes someway to explaining the apparent contradiction we are currently experiencing. 

The banks are ready and willing to lend but their over cautious credit committees are doing a very successful job in preventing this from happening. 
Maybe we can believe what we read in the papers………..

Southern Cross & the Care Homes Crisis

It is not without some dismay that I have been reading about the downfall of Southern Cross in the press.  Clearly this has been a disaster waiting to happen over the last year or so and finally it has.

The thought that up to 35,000 elderly residents could be ‘on the streets’ does not bear thinking about as my understanding is the average survival rate of an elderly care home resident after being moved is approximately six weeks.

There does seem to be some hope in that the landlords to a large extent are taking on these homes and in my opinion, there is no way the government would have stood by and let the homes be closed and the residents moved with the consequent mortality event.

I have to say the financial model which Southern Cross adopted in providing this care does seem to represent the type of reckless financial management which only takes place at the height of a boom. 

I can understand their desire to release capital from land and buildings and they would argue their business is providing care rather than being land and building landlords.  However, the one problem with this is that you then leave rent to the vagaries of your landlords and market forces which I believe has ultimately led to the downfall of Southern Cross.

It is difficult enough trying to run a care home in the current climate with the pressures of staff costs against zero increases from local authorities where residents are funded or self funding residents having reducing income due to current investment returns, without having to cope with ever increasing establishment costs.

I know it is easy to be wise after the event and hindsight is a wonderful thing and I can only say I do take relief in the fact that for the time being the ongoing security of the residents seems to be safe, after all that must surely be the most important thing.