Andeep Mangal: Times of opportunity amid the economic gloom

Oct 14 2008 By Andeep Mangal

While a carpet shop hasn’t made a sale all week, a bankrupt property developer has watched his £7.5 million investment sell for just £2.5 million. Now a large firm of accountants is revising its budget to show turnover of £4 million when it was expecting to do business worth £6 million this year.

As President of the Birmingham and West Midlands Society of Chartered Accountants I meet many of our members in the region and inevitably ask the question “How’s it going?”

It’s in the very nature of our job that we have our finger on the pulse of the business community. Our clients – whether they are multi-national corporations or sole traders – are being affected every day by the economic down-turn and the banking crisis.

A recent report we prepared on the regional economy, by surveying our members, threw up some interesting conclusions.

The construction industry and allied trades, as well as retailing, have been badly affected. At the same time manufacturing and engineering remain resilient because of the devaluation of the pound against the euro and the rising cost of imports from China.

We found that companies supplying the public sector were still buoyant, while those in the food and agriculture sector had enjoyed something of an up-turn.

Because of increasing energy costs one business we spoke to had cut employee hours ,and had later discovered that as a result, his staff were only £3 a week worse off because of tax credits.

This means that it may be impossible for him to gear up again should the opportunity arise.

The lack of deals in the corporate finance sector is regarded as due almost entirely to the banks’ inability to lend. Big firms of accountants are now swimming in shallow water looking for business, but not much is happening.

Bizarrely, some funders with money to lend, like the Aston Reinvestment Trust, are actually seeing a dearth of applications. Every day the news remains disheartening – even budding entrepreneurs are shying away from the challenge of business.

Some SMEs have been quickly put at risk because their banks have threatened to suddenly withdraw funding as the properties they may have put up as lending guarantees have dropped so sharply in value.

Previously these businesses had serviced their debts adequately.

Those still in business have to contend with continuing uncertainties over tax policy. For example the rules surrounding the taxing of married couples in a business partnership remain unresolved.

The Government has pledged to consult further on its plans to address this area, known as “income shifting”, but we have yet to see their new proposals. Because of this uncertainty some SMEs are struggling to make sensible decisions on the future.

At a time of high taxes and record Government spending, our members are also worried about wasteful levels of spending. Nationally and locally, members see examples of profligate spending which they believe to be impossible to justify.

It’s not all doom and gloom, though. Some businesses remain buoyant, even optimistic. A scrap-metal dealer has seen his turnover double to £40 million, for instance. There are also opportunities for well-run companies to make acquisitions at good prices.

However, one chartered accountant judges the state of the economy by the success or otherwise of a client he has had for a decade.

In all that time, the client’s business has seen year-on-year growth, but in the last 12 months, his turnover has fallen in real terms. The client runs eight swingers’ clubs which proves that even the sex industry has been hit by the down-turn.

When asked what these clubs were like he was non-committal: “I have no idea,” he said. “I’m just the accountant.”