Top Guns share business resilience advice at Begbies Traynor panel event

More than 50 businesspeople from across the region learned how building resilience into their businesses is a wise insurance policy in the face of current uncertain economic times.

They may not need it, but it’s there if they do.

That advice came from Tim Rogers, former CEO of global automotive company AB Dynamics, one of the four economic “top guns” at a special event sponsored by corporate restructuring and insolvency advisers Begbies Traynor, organised by The Business Magazine at the Everyman Cinema in Winchester.

The event was aimed at helping SMEs build resilience into their business in the face of a tough business landscape.

But it wasn’t an easy listen at times. Mark Berrisford-Smith, HSBC UK’s highly respected Head of Economics, warned there isn’t much good news about.

“We had inflation, then Brexit. Now the Ukraine war has made it worse through the twin shocks of higher energy and food prices. The overall picture, however we manage it and whatever economic policies our next Prime Minister adopts, is that it’s going to be difficult for quite some time.”

Inflation will be a “bulge not a spike”

Berrisford-Smith warned that the inflation surge won’t be over quickly. It will be “a bulge not a spike,” he said.

“Inflation has been caused by issues in global supply chains and also in the labour markets thanks to the chronic shortage of people in some of the world’s biggest economies which have recovered at a faster pace than their labour markets can cope with.”

The financial markets are worried about recession and inflation, he said. The upshot is that if you’re a business trying to raise money in debt and equity markets, you’re going to find it harder, thanks to rising borrowing costs and diminished investor appetite.

“The days of ultra-cheap money, of living on Planet ZIRP – Zero Interest Rate Policy – are over,” he added.

Despite media focus on the cost-of-living crisis, many (though by no means all) British households have more money in their banks than they did three years ago, because they weren’t able to spend as much during the pandemic. “All the comfort shopping couldn’t make up for the fact that we couldn’t go out and socialise.”

The amount held in bank deposits by businesses has also grown by about a third in the past three years, said Berrisford-Smith. “I’ve never seen anything like it. Businesses now have considerably more money in the banks than they borrow from them. The result is that both households and companies have a cushion of cash, of the sort that simply wasn’t available to them during previous downturns, such as those in the early 1990s and after the global financial crisis.”

More interest rate rises to come

Another reason the economy may hold up better than many people assume is because of the labour market. Employees have bargaining power. There are currently about 1.3 million vacancies, up from around 800,000 before the pandemic.

READ MORE: Tim Rogers: Building resilience in a business – Its Brutal out there!

Inevitably there will be more interest rate rises to come. To date, the Bank of England has taken a more cautious approach than some of its peers in other countries, according to Berrisford-Smith, with its forecasts and speeches by monetary policy committee (MPC) members suggesting that a few more hikes will do the job. The risk is that if the economy holds up better than feared then the MPC could under-cook its response to inflation in the short-term, which could mean them having to take a second and bigger bite of the cherry later on. It’s looking likely that capped gas and electricity prices will rise by more than 60 per cent in October, which would then push the annual rate of inflation to 11-12 per cent in the autumn. Berrisford-Smith suggested that businesses would do well to understand what a Bank Rate of around five per cent would mean for them. “That’s not the base case, but is certainly a possibility.”

The hope is that during the course of 2023 this year’s steep increases in food and energy costs will start to drop out of the calculation of annual inflation rates, and that wage pressures will also ease as more people return to the labour market and as some employees are laid off in the face of sluggish demand growth. But it’s still all to play for, he added.

Company insolvencies can create opportunities for others

However, Julie Palmer, Regional Managing Partner at Begbies Traynor, said that speaking to business owners, she feels that inflation is already running higher than reported, and some sectors such as construction and the hospitality sector, are showing real signs of stress.

READ MORE: South East consumer sectors a key indicator for severity of economic downturn

“Since 2008 insolvency rates have remained relatively stable. One reason for that is the sustained period of low interest rates and government support for policies such as the time to pay scheme.

“During the pandemic we saw HMRC become the lenders of first resort. While I appreciate Mark’s point that some businesses are carrying a lot of cash at the moment, other businesses are carrying a lot of debt that might be difficult to deal with.”

Banks have also been very supportive in keeping businesses going, she added.

While Palmer predicts that the numbers of companies falling into insolvency will rise, this could create opportunities for others.

“What follows any recession will be a time of opportunity. What should also be about to happen is the falling away of some of the zombie businesses, the ones that have marched on remorselessly. Then the better capitalised businesses will be able to pick up that marketspace, and that’s when I think we will be able to see the recovery.”

So how can you build business resilience?

Can the seven “C”s save companies from collapse?

Malcolm Niekirk is a solicitor heading Frettens’ recovery and corporate insolvency team.

Companies focussed on building business resilience need to concentrate on the “Seven Cs” he said. “Cash, careful contracting, credit control, compliance, co-operation, creativity and corporate conscience.

“Insolvency is when you run out of cash. And if you are borrowing – debt always must be paid back. Careful contracting starts with getting answers to six simple questions. Credit control is best achieved when you know your customers well. Companies need to be compliant and on top of regulations relating to their business, and co-operation – sharing skills or knowledge between companies, perhaps through industry bodies, or buying the right skills into your organisation can be really important.

“Creativity and innovation are the most fascinating things about business. Embracing these will help you direct the change that will inevitably happen to your business, and small changes can be as effective to your business as big ones.

“Finally corporate conscience. Reputation is hugely importance. Businesses need to maintain trust with their customers, suppliers and their teams.

“If you’ve got good processes and procedures for making decisions, the chances are those decisions are going to be good ones.”

Business resilience is a strategy, not what you do when you’re in trouble

Business resilience is a strategy, not what you do when you’re in trouble, added Tim Rogers.

“One company boss I know invested in developing good relationships not only with his customers, but with his suppliers too. By treating them as he would his customers, even helping them out, he made sure his key suppliers were there for him when he needed them.

“Most of us won’t have the luxury of going into a crisis with a warehouse full of stock and a strong bank balance, but good relationships can make a real difference.”

Rogers also warned that such an approach extends to employees too.

“When an insolvency company goes into a business, very often the staff are stunned – they didn’t know how bad things where. As a business owner you have a duty to share the good times and the bad times with your staff because you need to leverage all parts of your organisation to survive. And that involves building up loyalty and trust in your staff over a long time.”

“There is always an economic crisis somewhere in the world, there is always going to be uncertainty. As a business manager, you have no idea what effect a global crisis is going to have on your business.

“Running a business is all about taking calculated risks, but in the knowledge that you have your team behind you and the support of agencies around you.”