How many ostrich businesses are on your books?
October 2nd, 2019
It’s a question I have taken to asking accountancy colleagues of mine, particularly those who have client companies based in the West Midlands generally and, specifically, in Stoke-on-Trent.
I am not, of course, enquiring if they have recently taken on firms which specialise in the supply of large, ungainly and argumentative birds or, indeed, a Bentilee-based franchise of the Unfeasibly Large Egg company. What I am keen to find out, though, is how many of their clients do they suspect have a serious problem in their business but insist on burying their heads in the sand, pretending it is not there.
Many local accountants are having those difficult conversations with struggling owners and directors. They are pointing out the negative cashflow, the dwindling orderbook, the late payments from customers. They are the easier signs to spot.
But only the owner would be aware of a demotivated workforce, inability to attract qualified staff, threatening telephone calls from unpaid suppliers. Closer questioning is required to draw those facts out.
Trust me, I know what it is like not to want to face up to reality. Before opening up the Q3 UK Business Confidence Monitor put together by those brave souls at the Institute of Chartered Accountants in England and Wales (ICAEW), I turned my head away and narrowed my eyes, bracing myself for the horrors that lay within.
And horrors there are. Spare capacity running at 57%, one in five businesses struggling with late payment. Transport, retail and construction (all staples of local commercial activity) expressing negative confidence. The West Midlands with a huge drop on business confidence from just a year ago.
Locally, the problems are even more magnified. Here’s why. On 6 November 2017 in my blog here I drew attention to the problem of young people in our town who were going insolvent. Stoke-on-Trent had the sixth worst figures in the country at that time.
This is terrible, of course, for the young people involved but my point was that the young spend money in retail environments. Without their money, businesses will suffer. Bob Pinder, the ICAEW regional director, agreed with me.
“Businesses should be deeply concerned about the substantial increases in personal insolvencies”, he explained: “Consumer insolvencies increasing at this rate will almost certainly trigger considerable business risk and they must be able to identify the early warning signs fast, and take immediate actions to ensure they are not the ones to become next quarter’s statistics,”.
Two years on and the BBC has just run a number of special programmes about the plight of Stoke-on-Trent. More information can be found here.
It has revealed that one in every 200 adults in the city became insolvent in 2018 – the highest rate in England and Wales. Almost 52 in every 10,000 adults in the city – a total of 1,029 people – had either an individual voluntary arrangement, a debt relief order (DRO) or went bankrupt. The age group with the highest rise of personal insolvency in 2018 was 25-34, and 58% of those declaring insolvency were women.
Partly because of these appalling statistics, there are ostrich businesses right now who are struggling to keep their heads above water but are hiding the truth from their families and their accountants hoping that something will turn up.
Dear colleagues – you need to be identifying those clients on your books right now. Together we can pull their heads out, knock the sand from their eyes and help them look to the future.