The Economy, Cash Flow and Financial Information 1 February 2011

The Monetary Policy Committee voted to leave the Bank Base rate on hold at 0.5% at its recent January meeting, despite rising inflation and expectations of an inflation rate significantly above the 2% target for some time to come.  The latest official statistics indicate that inflation is up from 3.3% to 3.7% in December. 

Many commentators have stressed the need to "hold the nerve" and avoid unnecessarily raising rates too quickly as such increases are likely to dampen the economic recovery.  It appears that the only certainty at present is that we are faced with many more months of uncertainty and a challenging road to full recovery, with estimates for 2011 GDP growth ranging from a pessimistic less than 1.5% to a more optimistic 2.8%, against an official forecast of 2.1%.  This appears to indicate a "bumpy road to recovery" for the foreseeable future.

The strength of Scotland's recovery was questioned as a result of the latest Purchasing Managers' Index showing that the last quarter of 2010 was the weakest since the first quarter of 2009 – the starting point of the "official" recession, and more recently, GDP figures showed Britain's economy had shrunk by 0.5 per cent in the last three months of 2010.  The poor weather will obviously have had an impact on these latest figures, but it remains questionable how well the Scottish economy is performing.  The reliance on the Public Sector and the impact of the forthcoming cuts and fiscal increases should provide an additional challenge in the coming months, with fears continuing that there may be a "double dip".

Most sectors seem to be impacted and many companies face a constant cash flow battle, with late payments causing significant problems.  The lack of liquidity in the system as a result of the banking changes in recent years has exacerbated this problem.  However, many of the banks are "open for business" and are keen to lend.  Unfortunately recent press articles indicate that some are finding it more of a challenge than others to find good businesses with good management teams, and a robust business model.  There is also a question of whether the problem is demand led or supply led.

CR Corporate Solutions has significant experience of working with Owner Managed Businesses / SMEs and theirFinancial Stakeholders to provide such situations, and as a result, our experience of banks and their ability to lend remains positive in recent months.

Perhaps this is a result of our approach to situations and ensuring that our client companies have a robust plan and the ability to deliver through a strong management team and appropriate business model.  Timely financial information and the ability to update forecasts to reflect changes are vital.  This allows the bank to remain informed of the position and the forthcoming requirements.  More importantly, it allows the management team to use this information to run the business.

Vince Cable backed the recent campaign in association with the CBI and the British Bankers Association to encourage companies to produce monthly management accounts.  Why the shareholders of a business would be able to run their business effectively without this information has always been a puzzle.  In addition, a recent article from Accountancy Age in December highlighted that HM Revenue and Customs intends to target businesses that fail to keep proper tax records, and accounting information.

It remains to be seen whether either of these initiatives encourage owners of businesses to implement the changes required and significantly improve the quality of their financial information.

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