We don’t actually have a time machine…
September 19th, 2018
“Prediction is very difficult, especially if it’s about the future”, according to the physicist Neils Bohr. And he’s right. Prediction is a mug’s game. At IPD we don’t do prediction but we DO sometimes issue forecasts which, like weather forecasts, are not pronouncements of what will definitely happen but rather our views on what will probably happen based on our observations of the world around us.
I have to say that the IPD blog has been scarily accurate over the last 12 months:
- Last October we thought the national insolvency statistics – due out later that month – would make grim reading. And they were, with big rises in the underlying number of companies becoming insolvent.
- In May this year, it seemed to us that more companies than ever would be trying to make use of the Company Voluntary Arrangement (CVA) route. Sure enough, the following month, CVA notices began falling like confetti into the letterboxes of shareholders and creditors across the nation. And still are, by the way.
- Earlier this month (September), we were warning that business rate increases could prove fatal to businesses struggling with tight profit margins and rising costs. Hardly had the digital ink dried on this particular forecast than the Federation of Small Businesses (FSB) were demanding a “freeze” on business rates from April 2019.
“A serious look is needed to overhaul the unfair, regressive business rates tax that hits firms before they’ve had the chance to make their first pound of turnover, let alone profit,” they added.
Behind the campaigning, there are many individual cases of businesses being blown out of the water by rising business rates. One FSB member, a coffee shop owner in Peterborough, explained:
“My business faces serious financial difficulty after the local council failed to inform me that a transitional charge would be added to my business rates bill. This is despite calling them ahead of signing my lease to confirm the billing amount.
“I had budgeted for a monthly amount of £1,500, but the bill was actually for £3,333 a month for the first four months and is now £2,500 a month.
“The charge is double what the council first told me to expect and is putting the business under immense financial pressure and very possible risk of closure.
“Business rates are difficult to work out without hiring expensive agents and lawyers. I had hoped that by contacting the council they would be able to help, but it feels like they don’t understand it either.”
This business owner mentions hiring agents and lawyers but I would say that it is his usual trusted adviser (his accountants) who should have been flagging up the potential for rising costs to completely derail a business.
Meanwhile, at the other end of the scale, Debenhams were calling in KPMG to look at all the options open to them after pointing to rising business rates as one of the difficulties it was facing.
Now – we don’t actually have a time machine in the cellar at IPD, so we are not nipping forward a few months to find out future business trends before coming back to the office to develop our ‘forecasts’. But we did know that, because the inflation measure that is used to calculate business rates is set to change, that businesses in England could face a rates hike of £759m next year.
At IPD, we are often asked to assess the viability of businesses and part of that process involves a 360º assessment on the threats to a company’s solvency (or otherwise!). Business rates form part of that assessment. For more information see our Financial and Options Review service here.
So, it’s not time travel. It’s not even rocket science. But it is what we do.