Neither a Borrower or a Trade Creditor be

Attended a breakfast seminar, hosted by S J Berwin, entitled "January Sales! How to get a Real Bargain from a Distressed Seller." The seminar discussed the options available to bidders and the risks and rewards associated with acquiring the business assets of companies entering administration.



One slide illustrated controversial 'Pre-packed' or 'Phoenix' administrations. Here a new company with the same secured creditors, same equity holders, same management (possibly) and of course the same assets, emerges from the flames of a failing business leaving behind the unsecured creditors with a bad taste in their mouth.



A recent example of a successful phoenix administration is the Michelin-starred restaurant chain run by Tom Aikens last October. Mr Aikens recently opened his soul to the Evening Standard expressing his guilt over the plight of his suppliers. These were mainly small businesses struggling to survive while his restaurants didn't miss even one day's trading. That did indeed leave a bad taste in many people's mouths. Not however for his staff, who got to keep their jobs, and (hopefully) not for his customers who were able to continue to enjoy a Michelin-starred service. In fact, according to Mr Aiken, 80% of his suppliers have continued to trade with his new company despite writing off their past debt with him. They are, of course, supplying on a cash basis which is sound risk management and to be expected given their recent experience. It is easy to criticise the practice of phoenix administrations and the impact they have on unsecured creditors, who always seem to be the ones to lose out. However, business continuation, particularly from the point of view of employees, is arguably the best result from an administration. Unfortunately this often means that the villain of the story does not get their just desserts. For the sake of employment and continued trade this may be a small price to pay, unlike for the meals served up by Mr Aiken. Over pricing, he admits, was one of the reasons for his business failure.


Businesses seek to limit their exposure to credit risk by having a diversified customer base, carrying out due diligence on potential customers and agreeing credit terms with customers. There will always be a risk that a customer will not be able to settle their outstanding invoices. Businesses understand, accept and take this risk. The focus is often on the plight of unsecured creditors during high profile business failures.



A more worrying concern for me is the way big businesses treat their small business creditors on a daily basis. Having worked in the temporary recruitment sector I have experience of the extraordinarily long credit terms the large banks command and their inability to meet even these deadlines on time. Similarly a large supermarket chain is currently sitting on tens of thousands of pounds worth of invoices owed to a small business recruitment contact of mine. This equates to the level of his monthly payroll and can be the difference between survival and failure for his business.


There has been a lot of focus on the treatment of borrowers by the banking sector. I suggest that multi-billion pound businesses, such as banks and supermarket chains, have as big a responsibility to their small business creditors. They should be doing their part to ensure the flow of cash throughout the economy by sticking to the credit terms they have agreed. Fair trade should surely start at home.



Mark Widnall

Look after your suppliers? No really - look after your suppliers….

The announcement yesterday that Zavvi, the music, games and DVD retailer is to close a further 15 stores, has brought home a salient point about the recession that often gets overlooked in those “top tips on surviving the recession” listings.

Nearly everybody will suggest that you imagine a scenario when one of your top customers goes bust, but very little emphasis is put on the situation when one of your main suppliers goes the same way. Yet that is precisely what has happened in this case, where the key supplier in question was Entertainment UK, which was a casualty of the Woolworths demise. Not only did Zavvi lose its key supplier at a time when it desperately needed stock i.e. the run up to Christmas, but more importantly it lost valuable credit facilities, which could not be replaced as new suppliers demanded immediate payment.

A salutary lesson for everybody - when your key supplier goes down not only do you lose products that you need for your business, you potentially lose a valuable source of finance. One to add to those key financial relationships that have to be managed.

Fraud - If it's too good to be true...it probably is

Off to the Ipswich and Suffolk Small Business Association (ISSBA) Fraud Forum last night just outside Ipswich.

This was a question and answer session with the police, legal profession, anti-fraud consultants and rating agencies. Unfortunately the audience for the most part were there to give vent to their frustration at various frauds they had suffered, poor police response and a desire for some government agency to prevent spam emails.

It was hard work for the panel to get over that prevention was the key. Once the fraud had taken place you would be out of pocket even if there was a successful police investigation. You need to be on you guard – if it sounds too good to be true then it probably is. There are too many small, provincial traders ready to sent over £10,000 of goods to Nigeria and are amazed when the payment goes bad. I was left thinking that with a small amount of the sort of advice a Finance Director gives, many of these frauds would have been prevented by suitable internal controls.


Phil Greenwood

I've got the brains you've got the looks.....

Back in the 80s the Pet Shop Boys banged on that "There's a lot of opportunities, if you know when to take them, if there aren't, you can make them".

It is easy to think at the moment that opportunities are in short supply but talking to Henry Camilleri of independent financial advisors Camilleri Associates this morning at a breakfast seminar organised by Clydesdale Bank, it was interesting to hear that he has used the current wave of redundancies by major insurance and investment firms to increase his network of experienced financial advisors. As he said, the chance to bring on board some highly talented people that would not normally be available to him was too good to pass up, and has enabled him to add some weight to the strategy that he has set out for himself to improve his business in 2009. This was one of the points we made in our recent SMART presentation so it was good to hear of a practical example.

The topic today’s seminar was 'Doing business in a slowing economy' with Terry Irwin of TCii Strategic and Management Consultants, a common enough theme perhaps, but the point that companies need to get back to the basics of financial management in order to survive and thrive in the current market bears repeating again and again. Our hosts Clydesdale Bank also made this point in relation to the fact that their parent company National Australia Bank is currently one of the few banks that is relatively unscathed by the current banking turmoil. Terry Irwin believes that we should hit the bottom of this recession during 2009, with some small signs of recovery starting at the end of 2009 or beginning of 2010. Given the speed that the economy is unravelling, I would agree with his assessment about reaching the bottom, but would suggest that businesses adopt the advice of the Pet Shop Boys regarding opportunities in order to plot their own course to recovery outside of any general economic improvement. Henry’s actions above are good start along this road.

Green shoots or just some moss?

Speaking with a local bank manager from HSBC yesterday at the Hounslow Chamber of Commerce lunch, he said he was amazed at resilience of the economy in his area and at the number of new business accounts that were being opened. Indeed according to an article in Business Matters magazine owning a business is good for your health. That is of course as long as you avoid February which according to Paul King of Ark Commercial Finance is statistically the peak month when businesses run out of cash and fail.

Meanwhile a new survey from the Forum of Private Businesses reported that a third of members surveyed actively sought finance during the last quarter but in spite of the government bank bailouts and active lobbying by the SME business community almost half had their applications partially or completely rejected. It is against statistics like this that success of the new Government loan scheme that was announced yesterday will need to be measured.

Of course new money, however it arrives, is to be welcomed, but the challenge for SMEs is going to be to understand and manage the processes that will need to be gone through in order to get that money. It will be still be necessary to produce credible business plans to support applications, and to provide lenders, even those with the comfort of a government guarantee, with evidence that proper financial control, cash management and reporting systems are in place. They are just not going to give the money away, but if the right approach is taken there is a good chance of success. Assuming of course you survive February…….

Antony Doggwiler

Enterprise Zone strikes a chord

Leafing through last Sunday’s Mail on Sunday newspaper I was interested to see how many articles on pages 66-67, the “Enterprise Zone” struck a real chord with what we are looking to achieve in 2009.

Pride of place went to our good friends at BCMS Corporate who had their “refreshingly different approach to selling companies” and their current successes in what conventional thinking would have you believe was a difficult climate for buying and selling businesses featured in this article. A very SMART business in our view.

Not so encouraging however was the news that 38% of small businesses do not expect to survive 2009 because of the downturn. Commenting on the survey carried out by Financial Mail and its sister site thisismoney.co.uk, Nick Palin from the Forum of Private Businesses said that he believed that the survival of many businesses will depend on the banks, who he maintains “are often still bracketing all small firms as high risk despite pressure from the Government and the small business lobby.” Banking relationships are crucial and are something that we will be covering in a presentation to Surrey Chamber of Commerce members on 3rd February in Shepperton (booking details).

Interestingly though, according to a report on a survey by Tenon Recovery, businesses that have been trading for between five and nine years are most likely to benefit from opportunities in the downturn. 37% of companies in this category say the economic downturn has provided opportunities for their business, including “taking clients from competitors, purchasing assets and stocks at a good price and increasing their client and customer base compared with only 29% overall”.

The basic message from these Mail on Sunday articles remains that existing SMART companies will continue to prosper, but equally it is not too late for companies to get themselves SMART to give themselves every chance of not only surviving but thriving.