Recession - fact finding

Recession - fact finding

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We are based in Yorkshire, North East England, and recent events have sparked my curiosity (again!)

First, a building contractor client is getting badly squeezed. His housing association contractor doesn't ask for tenders anymore. He has been told he can have a contract for 20% less than the previous one, or do without. Also, the same contractor has extended payment terms from 30 days to 60 days. Like most businesses, our client wants to keep his many workers in employment, and in any case, he can't reduce his workers and still meet the deadlines set in the contract. He has put out feelers, and all other housing associations are doing the same thing.

Secondly, a specialist consultant who works exclusively for USA companies has had his contract terminated without notice. Reason given was the economic climate in the USA. They cannot foresee any new contracts in the foreseeable future.

Over the last few weeks, we have seen a massive upsurge in the newly self employed. Most of these are people made redundant from employment, and cannot find new employment. They see self employment as a way to keep a reasonable standard of living and avoid benefits. Also, we have seen potential clients (budding entrepreneurs) debating whether to buy the many struggling busineses that are for sale at knock down prices, in the hope they can 'turn them around'.

We have many businesses just holding on, and if the recession does deepen I fear the worst.

I am not particularly interested in playing the blame game, as to who is responsible for the crisis. We are in this situation now and have to deal with it. What I am interested is in knowing whether the recession is worsening across the country, or is it very local to us?

Replies (13)

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By OldAccountant
20th Jul 2011 09:22

I don't think the effects you describe are all direct results of

 

The building trade is an example of employers "using" the current crisis to drive down wage costs. They know that there vare lots of unemployed bricklayers etc out there, and that many are desparate, so they use that to drive down wages. I've sen joiners who used to get £14/hour on site, now being offered £8/hour for the same work on the same site. There is definitely an element of exploitation going on.

Also, their is a lot of fear, much of it hysteria whipped up by the press and by politicians (mainly labour) trying to score cheap political points by exagerating and lying, and of course, the media looking for a story and sensationalising anything they find.

 

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By Jekyll and Hyde
20th Jul 2011 09:27

I agree

We are not a million miles away and I completely agree with you. With Italy looking suspect and Greece and Ireland still in trouble, I am beginning to wonder if UK is nearer breaking point then we are being informed. This causes my practise problems as HMRC seem to be seeking to collect more taxes even when they are not due. See today's bbc new's article on HMRC savings, only going to make our jobs a lot harder in the next few years and who will pay us for all this. Putting all things together I see a doomly end to 2011/start of 2012.

I generally feel sorry for the employees being made redundant and going self employed as I do not think they realise just how much most small businesses are struggling at present, even small accountancy firms. This means that there is going to be less work around for more businesses, and simply economics would suggest that lowers prices will arise.

I am lucky myself, I have little debt and have built up a small fund to deal with this anticipated low, but unlike me, the vast majority of small businesses over thelast decade have not and have spent. spent , spent. Now their balance sheets are coming home to roost. Like with every downturn, there are still opportunities that will present themselves.

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By Jimess
20th Jul 2011 09:56

Economy

We are also based in Yorkshire and have been experiencing similar situations.  We are seeing a huge number of new clients who have been made redundant and being advised by agencies to set up limited companies to get work and sadly in some cases finding that the work is hard to come across.  The town centre is sometimes like Marie Celeste, hardly any shoppers and the sad sight of "closed" posters on many smaller shops.  Clients with contracts with larger companies are finding their cash flow squeezed by the larger companies taking longer to pay - one case I looked at recently the large company customer had moved their payment terms from 30 days after the month end in which invoiced to 90 days with a further extension to 120 days for any work invoiced after 1 July! The client in question have to pay their employees weekly - they simply cannot afford to undertake work for this company any longer on those terms and will eventually be squeezed out of the market.  Small businesses just cannot survive such a slowdown in cash flow.  It is certainly "Grim up North" and getting more so every day.

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By Steve Holloway
20th Jul 2011 10:02

Patchy down south ...

 retail and building is horrible and has been for three years really. Financial services seems pretty busy  .... banks in London are hiring temporary staff hand over fist to complete risk based projects arising from them banking crisis. Temporary staff recruitment is busy as are letting agents. I think it is getting worse rather than better with most households cancelling discretionary spending. This could hit a number of my clients who offer services to the wealthy such as gardeners, travel agents, interior designers etc.

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By jasonholden
20th Jul 2011 10:23

All over ..

Although we are based in the North West our client bsase is national. What you are seeing is not that it is getting worse but that many sectors are still in the grip of reccession, having never come out of it despite what the politicians would have people believe.

As for London, our clients in London have seen this year pick up considerable, but outside the capital, anything retail based on the highstreet - forget it, it is still in reccession but building contractors, although price adjustment is required to reflect the property market in general, we are seeing those in the building industry (not residential and not one man contractors) are picking up more and more especially in the North East.

So rather than it being grim up north, its not, its certain sectors that are still in reccession while others are doing well. (IMO)

Jason

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By Ken Howard
20th Jul 2011 10:49

Ripple out effect
It looks like it's a repeat of the 1990-1992 recession. I worked in Kendal (Lake District) at that time, and whilst London and the South were suffering at the start, we barely felt it at all. Then as the South was picking up, Kendal was hit like a lightning bolt with major redundancies from insurance firms and manufacturing which had been knocked by the original recession but had struggled on for a year or two before taking decisive action. Of course, then there was the knock on effect on retail and services once people had lost their jobs. I'd say we'd been about 2-3 years behind the South.

I think the same is happening now. Barely saw any signs of recession until earlier this year and now clients are beginning to see trade suffering and work harder to find. This is doubly unfortunate as there is relatively little help for them now, compared to the support available 2-3 years ago, i.e. tax refunds for losses, delaying tax payments etc. Now my clients are being hit and they can't get tax refunds and can't get time to pay their taxes, etc., which makes things harder for them. Just because that there may be signs the recession is over in London and the South, with employment and house prices rising again, doesn't mean that things aren't still downward in other parts of the country.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
22nd Jul 2011 10:37

Really interesting thread

Thanks for posting your observations, Shirley, and for all the responses so far. I think we may be on to something here and it will be interesting to see if other members can come forward with further evidence to back or counter your suspicions about the North-South divide.

If we can combine this evidence with a few other statistical sources, we could be able to compile a very useful analysis covering econonic trends across the regions - and perhaps extending out to different business sectors.

Shirley has inspired this idea with her post - so please help out here if you've got comments you'd like to add. But if you want to see how our analysis of North-South divide develops, you can also join in a conversation I've started in our Economy discussion group.

Hope to see you there - and watch for further developments on this issue.

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@enanen
By enanen
22nd Jul 2011 10:59

West of Scotland

I am fed up of this recession as it appear to be in its third year and seems to be getting worse for clients every week. The public have stopped spending money on non-essentials because of pure fear, and banks will not lend, or cannot lend because of liquidity. Every day is a challenge keeping construction and retail afloat. Banks are taking very short views and there is no support. I am expecting a perfect storm if it does not improve where the sick and injured businesses will be wiped out. A challenging time. It is also not helped by banks trying to re-price clients facilities at the same time.

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By RogerNeale
22nd Jul 2011 11:01

Pretty bad here

Speaking from one of the recognised most deprived areas in the country, I can say that, for some businesses, things are just not getting any better.

The North East Derbyshire / Bolsover area has a very high un-employment rate and is recognised as one of the worst affected areas having been hit previously by the closure of the coal mines, many people re-trained for textile other industries but many of these have now closed.

Most of the clients I deal with are "surviving" without the need to loose staff and they're hoping that things will start to improve. I have clients in the financial services sector who, because of the regulation changes, are actually doing quite well and reporting increased turnover and profits so, while it is bad for many, for a few it is comparitively quite good.

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By Rob Newton
22nd Jul 2011 11:20

North South divide or Worldwide

Funnily enough in the last month things have all become that much tighter.  Contracts have been put on hold, payment terms are now exceeding the 60 days and it looks to be a tough summer here in Sussex.  The feed back from clients is of a worrying nature and especially the builders who need to earn as much money as they can before the winter months set in.  

A few clients have order books worth double their avearage turnover, but the work is not being commissioned as yet. 

It is going to be a challenging time ahead for some and it will be interesting to see how the banks offer their support to the small businesses (if at all).

Interestingly enough I had a call from Tanzania this morning from clients who operate high end safaris.  The principle season is between July and December amd most of their competitors are only opening for July and August, luckily my client has guarranteed bookings through to November next year at full capacity, but they are worrying about the future after that - especially as they have been given notice that electricity will be cut off all together in 60 days and they are under fuel rationing so running the generators will be a struggle too, especially in the bush.

So my answer to this discussion is that things are pretty tough North and South of the country and abroad too.  

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Della Hudson FCA
By Della Hudson
22nd Jul 2011 11:40

Bolton to Bristol

We relocated from Bolton to Bristol in December and my practice is now about 50:50 north and south. Both parts of the country are about the same which has really surprised me. I heard that the north was expected to suffer more from the public sector cuts. The south was a little more affluent to start with so I expected this to be buffered more.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
22nd Jul 2011 11:05

More data from Scotland

Management Today just reported that while England may be "limping slowly out of recession", Scotland saw a 25% rise in the number of people going bust compared with the previous quarter, according to figures from Accountant in Bankruptcy (AIB). That’s the biggest quarterly rise since 2008, when the recession began. 

The Office for National Statistics reported the Scottish economy grew by just 0.1% in the first quarter of 2010, after a significant fall in the previous quarter. "Compared to the 0.5% growth for the UK as a whole, it suggests the Scottish economy is languishing far behind," MT commented.

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By mfbrown185
22nd Jul 2011 12:26

Economy North South divide

Hi Folks

I echo Roger Neales post. My practice sits squarely in the middle of the country (North West Leicestershire) is also a former mining area with high unemployment and other socio-economic problems.

Recently we have seen a number of "start up" business's mainly as sub contractors to building trade(s), but others are service related. Few have a real grasp on how to find work, where to go for support and basically how to get the business moving.

Banks are not helping and are increasing costs at every opportunity.

I have been more optimistic recently with some of our formerly depressed (larger) clients beginning to see an upsurge in tenders out for quote - but there are also more bidders involved in the process with some companies "buying in" work at prices that would never have been considered 3 or 4 years ago.

Our HGV driver client base report hourly rates down to £8.50 an hour as oposed to £11.00 per hours 3 years ago for the same run. Also some of them have been displaced by driver agencies set up to place Eastern European drivers into contracts at very very low rates.

We have a couple of clients who restore vintage motorcycles etc. they are very busy with work but can wait months to be paid.

All in all it will be an interesting and very difficult fourth quarter 2011.

Mark Brown

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