What the Dickens is going on?
by David Thornhill, MD of Simplicity
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” Charles Dickens. A Tale of Two Cities.
The UK Government’s Insolvency Service released figures and statistics back in November 2011 showing that company insolvencies were up by 0.1% on the previous quarter and up by 6.5% on the same quarter just one year ago. Quarter 3 GDP figures showed that UK output has increased by 0.5% (up from 0.2% the previous quarter), but unemployment is at 2.62m with CPI inflation at 5.2%.
It certainly sounds like there is a mix of good and bad news, but what does it mean to the recruitment industry for 2012? Is it really the worst of times?
What should be made clear to those in the industry is that the background economic figures I mentioned above are not directly relevant to your individual business. Of course they do describe the general business environment, but they do not apply equally to all businesses, or to all sectors. Take my own business as an example: whilst the recruitment market has actually decreased overall, results are in our favour with growth because our customers are struggling to attract financial backing from other resources, and we are able to offer the support where others can’t.
We can apply the same intelligence to your own business. Let’s take a company insolvency that recently hit the headlines by way of an example to begin with. The fact that T J Hughes recently went into administration (leaving £339m of creditors) could rightly have caused a collective gasp in the market place, and might well have affected your own attitude to risk – however this case study would only really be directly relevant to you if your company was one of the creditors, or if one of your clients was one of their creditors and was now struggling to pay you in return.
Similarly, the overall increase in UK GDP is much less relevant to you than how your own sales and order books are looking.
What I’m attempting to convey is that there will be winners and losers at all times in all sectors, regardless of the background financial statistics. Despite the gloomy outlook purported in the media, we are witnessing massive success of companies in retail, construction, and manufacturing. Companies are growing their exports and finding new markets even in these generally difficult times. Some recruitment sectors are in serious trouble, whilst some are absolutely booming.
What is true to say is that we have an unprecedented time of unpredictability, and this often leads to uncertainty and a lack of confidence. That lack of confidence can result in a failure to invest in the future, and that is perhaps where the latest Insolvency figures come in to play. Sometimes a vicious circle can be set in motion.
The problem for the recruitment sector is that not only are there a growing number of companies going bust, but many of those insolvencies are completely unpredictable – just a few weeks ago, Parry Bowen Ltd went into administration. Not a national or long standing name like Woolworths, but nevertheless a construction contractor established in 1979 with turnover of £23m in the accounting period ending 30th June 2010. Those accounts showed a £3.6m net worth on the balance sheet, £2m in cash, and £3.6m working capital. They looked like a good credit risk on paper, right up until they went into administration. If you didn’t give credit to companies like Parry Bowen, then there would be rather a lot of companies that you wouldn’t ever give credit to!
So we have to make choices. Do zero business and suffer no risks, or give all the credit we can afford and take those risks in uncertain times - including the risk of losing your business if a client fails. However there is an alternative, a third way, and that is to get credit insurance and give credit to your clients up to that limit. Credit insurance can’t stop your customers going bust, but it can give you confidence to trade, and it can give you the security to continue to provide goods and services to companies like Parry Bowen Ltd – with insurance cover in the event that such customers do go bust.
If you haven’t used credit insurance before, then I would sincerely recommend considering the use of a broker (and one that understands the recruitment market too), because the potential for confusion in the credit insurance world is a big as it is in the invoice finance world (see my earlier “F word” blog post). If you would like a recommendation of a broker that I myself rely on and would recommend, just let me know.
Credit Insurance can sometimes seem expensive, but it would not only save your business if a big client fails –that’s the defensive bit - but it can also help you increase invoice finance levels too – and that’s the opportunistic element that can give you an edge in these uncertain times. Invoice funders are always much more keen to provide funding for insured debt (as long as you make them the loss payee of course).
Finally, let’s assume you have explored all of those avenues. You have a client you enjoy working for; they love your service to bits and would like more of it. However, because of the state of the UK economy, and your client’s credit limit, you are at the finance and insurable limit and can’t get what you need to double your business; is there anything you can do? Well until now, the answer has always been “no” - but we have just launched a brand new product called “Double It”. I can announce here that I am personally heavily connected with this new innovation at Simplicity – it is the only solution that I know in the industry and I’d be happy to explain it use in more detail if anyone was interested.
When you are supplying a client with temps or contractors, you will need to be confident that you have the funds in place to pay those people the right amounts at the right time. At the very heart of your temp business is this: having access to more funds allows you to grow your business, achieve more sales and provides an opportunity to widen your client base.
My parting words… remember that the worst of times for some, can be the best of times for others.
Thanks for reading, I hope you all had a relaxing festive break and are looking forward to a busy and successful 2012!
No comments:
Post a Comment