I discovered an interesting economic indicator recently, the Skip Index. I have blogged before about one unusual way of judging how buoyant the local economy is, by counting cranes on the skyline (http://www.yourfbs.co.uk/what-does-economic-recovery-look-like/ ), now there is another method that doesn’t require a strained neck gazing upwards – counting skips on the road in your neighbourhood.
The principle is very simple; skips provide evidence of optimism and investment. A skip represents financial activity. This activity might be a new bathroom, a landscaped garden, a new driveway, or the installation of double glazing. The one thing these all have in common is evidence of disposable income being spent.
So, how many skips make an economic recovery? I guess that depends on the area you are looking at. It might be an area, a long road, or the whole village. Like cranes on the skyline of a city, skips come and go, but there presence is a sign of economic hope.
I wonder how many skips the Bank of England’s Monetary Policy Committee see on their way to work…
Ahead of the budget, here is a prediction: in the next 6 months, either inflation will go up, or interest rates will go up, or they both will go up.
The challenge therefore is not to second guess what is going to happen, but what you are going to do about the inevitable increases.
At the start of the recession, interest rates tumbled to their lowest level in living memory. To remind yourself what it was like, work out what the additional cost of an increase of 1% on your borrowings would be. Now multiply that by 4 or 5. That is how much better off you are at the moment, and how much you will need to find again when interest rates go up.
In the mean time, inflation is creeping up. No change there. However, pay awards are being held flat or low. Certainly lower than inflation.
My real prediction is that life could be a lot worse.
Businesses need banks, and banks need businesses. But as a business owner, how do you decide which bank to trust your money with?
I have helped a number of organisations choose a bank – some for the first time, some because they wanted a change, and some because they needed to change!
There are many considerations to weigh up, including: cost, secondary services, knowledge of your business sector, location of branches, access to help. To me, the most important factor when deciding who to bank with is the Relationship Manager.
It is perhaps a little unfair to say that all banks are alike, however, there is generally very little between them in cost, in location, and in the general service they offer. To my mind therefore, the biggest difference between banks is in their staff.
When I needed to set up a bank account for my business, I walked down the high street in my home town, and walked into every bank. I asked the same question in each branch, “Please can I talk to someone about setting up a business bank account”. Within 30 seconds of walking in, I felt I knew how much the person I was talking to cared about me and my business.
I would not want anyone to think that choosing a bank is a decision to take lightly – particularly in today’s economic climate. Never forget who is the customer. As ever, more than numbers and statistics, it’s the people we do business with that matter, and I suggest that this includes your bank’s Relationship Manager.
I read an interesting statistic recently. In ACE’s recently published 2008/09 submissions from Regularly Funded Organisations, combined ‘Contributed Income’ (sponsorship, trusts, donations, and lottery revenue partnership funding) fell by over £12.6 million (11%). But this was more than made up for by combined ‘Earned Income’ (ticket sales, workshop fees, merchandising, sale of books and magazines, etc.) which rose by £52.8 million (12%).
If you have read my blogs over the last couple of years, you will know that I hold a particular view of the “recession”; it was patchy, not universal. Its impact ranged from the catastrophic (if you were in house building, car manufacturing, or banking), to the liberating (with interest rates at an all time low, many households were between £100 and £150 a month better off). Public money was drying up, but private/personal money was plentiful.
Reliance on public funding has become an increasingly high risk strategy. I speak from personal experience as the ex-treasurer of an excellent provider of arts education which closed due to withdrawal of its core funding. Other organisations I know well are also starting to think the unthinkable – what if we can’t rely on public funding anymore?
So what is Plan B?
Well, I think public funding will become increasingly scarce, and with the hoops to jump through and numerous forms to complete, it will become harder to maintain.
There has been an interesting debate on LinkedIn to do with factoring as a way of improving cashflow. What caught my eye was a comment that said “payment terms has, and never will, kill a good idea”. I see this as a clarion call to every organisation that has a good idea – if it’s that good, someone will pay for it.
Listening to the radio today, I was struck by the speaker’s complaint about how “the credit crunch” was still causing problems to his business.
It got me thinking. What was really at the heart of his problem?
The Credit Crunch refers to a bank’s unwillingness to lend money. Was he looking for a loan? If so, what for? To invest in greater capacity? To launch a new line of products or services? To help with poor cashflow?
If it was the last reason, I can understand the bank’s reluctance to lend, and crunch his credit.
Banks have not helped themselves in recent months, but their core purpose remains the same: to lend money to businesses. In return they expect a profit on their investment.
If you are having difficulties convincing your bank to lend money to you, maybe it’s because of something you need to do, or say.
If you need help talking to your bank, let me know. I might be able to help.
One of the oldest concepts in international economics is the theory of purchasing-power parity (PPP). PPP argues that, in the long run, exchange rates should move towards levels that would equalise the prices of an identical basket of goods and services in any two countries.
The Economist uses just one item: the Big Mac.
If a Big Mac costs £2.50 in the UK, at today’s exchange rate (£1 = $1.46677), a Big Mac in the US should cost $3.67.
If it costs more than $3.67 then the PPP concept suggests that the pound is overvalued (or the dollar is undervalued). The consequence of this is that, all things being equal, either the pound will go up, or the dollar will fall.
Too simple? Possibly, but as a measurement of exchange rates, Big Maconomics has endured.
Sometimes I think we make life too complicated and not enough fun.
Much is being said in the media these days about what economic recovery will look like. I suspect that life is too complicated to find generalised answers to this question, and that we are better looking at more specific areas.
One measurement of economic output I was told about many years ago was the “crane count”.
Very simply, how many cranes can you see on the skyline of your city?
Each crane represents an army of workers delivering a building project. Each one represents confidence in investment. There is no such thing (unless I’m much mistaken) as an idle crane.
How many cranes can you count, and are there more, less or about the same as this time last year?
With thanks to Martins Money Tips (www.moneysavingexpert.com) , welcome to the new tax year, here is a brief summary of thehighlights (last year’s figures are in brackets).
Personal allowance UP! Every man, woman and child can now earn £6,475 (£6,035) before paying income tax. For those aged 65-74, it’s £9,490 (£9,030), and for over-75s, £9,640 (£9,180).
Basic rate tax threshold UP. You now pay 20% tax on the first £37,400 (£34,800) over the personal allowance, meaning under 65s hit the higher 40% rate at £43,875 (£40,835).
National insurance start point UP. You now need to earn £110 per week (£105), before paying for NI, usually 11%.
State pension UP. It’s £95.25 (£90.70) a week for a single person.
Pension credit UP. The minimum guaranteed income’s now £130 for single pensioners (£124.05), and £198.45 for couples (£189.35).
New Health in Pregnancy Grant. All pregnant women will get a non-means-tested £190 in their 25th week.
Inheritance tax threshold UP. You can leave £325,000 (£312,000) tax-free.
And the not so good:
Fiscal drag. This isn’t Alistair Darling in women’s clothes, it’s when increased allowances aren’t as generous as they seem. If wages and/or inflation increase by more than the allowances, effectively the government gets more tax revenue anyway, and the real value of the increase is less.
National insurance upper earnings UP. You will pay 11% NI on earnings up to £43,888 a year (£40,040) and 1% above that.
ISA limits. No change. Yet again, the amount savable tax-free hasn’t increased with inflation or earnings.
Child Tax Credit family element. No change. Many families get this, and the freeze at £545 is an effective cut. Yet the means-tested element has increased to £2,235.
Remember to take proper advice before making any decisions…
We have much to thank Donald Rumsfeld for. Although mocked for his listing of “what he knew he knew”, “what he knew he didn’t know”, etc, this analysis of your situation can often distinguish perception from reality.
Compiling a list of things that you know you know about your business might seem like a waste of time, but put it beside a list of things you don’t know about your business, and you might surprise yourself just how many things you suspect, but aren’t sure about.
If you aren’t sure about it, then you don’t know it.
And then ask yourself, what are you doing to find out?
Spent a great afternoon today on a panel presenting to a group of aspiring film makers. I am always inspired by those who have creativity running through their veins. Something about art being the object of their day’s work, not the pursuit of profit.
My input was to help improve the participant’s business skills. Also on the panel were four (yes, four) lawyers.
Art is good, sustainable art is better; be led by your work, not by the corporate structure.