Next six months the key to survival
A RECENT CBI/PwC Financial Services survey showed the sector more confident than it has been in two years. But Paul Beasley, group managing director at Richmond House Group in Stevenage, is more cautious about the optimism saying this is not surprising g
A RECENT CBI/PwC Financial Services survey showed the sector more confident than it has been in two years.
But Paul Beasley, group managing director at Richmond House Group in Stevenage, is more cautious about the optimism saying this is not surprising given the pitiful state of the banking sector and the continuing fall in savings during this time.
He also warns that many businesses could feel the chill of the recession this winter.
"Remember, it was August 2007 when Northern Rock first got into trouble.
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Nevertheless, we must be pleased sentiment is shifting. But what does this mean for the wider economy and the prospects for local business in particular?" said Mr Beasley.
"Our experience with small and medium enterprises is that over 90 per cent are reporting falling revenues. Wage rolls have been cut on average between five and 10 per cent and widespread cost cutting has been a necessity.
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"Order books are full for at best three to four months as opposed to six months plus. Continued exchange rate volatility makes it very difficult for importers/exporters to manage pricing.
"However, we have seen far fewer failures among clients than in the last recession and I believe this has been due to their relative strength going into this recession.
"That said, sentiment going forward is not shifting in line with the Financial Services sector. While there is acknowledgement that the downturn may have levelled off, most future growth plans are on hold for six months.
"The winter months are a tough time for many seasonal businesses and we could see more failures as companies enter their most difficult trading period in a weaker state. Those that are relatively well placed see no need to take additional risks until there is clear evidence of recovery."
Mr Beasley added: "Demand for bank lending therefore remains low. It is not just that banks are more cautious. The Government-backed guarantee scheme is not having the desired effect. It was not designed to support struggling business but to free up the market for investment in growth.
"Those who need finance can't get it and those that can are being cautious, particularly as banks' margins and fees are increasing sharply. The level of directors' personal guarantees is higher under the government scheme, which is also deterring expansion.
"This area has ridden the recession relatively well but it is clear that the next six months are going to be key. Don't expect to see a sharp upturn, if anything we might see a turn for the worse before they get better, both locally and nationally. The recent buoyancy of the stock market appears premature.