An interesting article here in the Telegraph which highlights the problem of late-payment of supplier invoices as firms look to find ways of improving their cash flows. Businesses of all types use trade credit as a key source of short-term finance - it is perfectly acceptable and a normal part of doing business. What is less acceptable (from an ethical point of view) is deliberately stretching the time taken to settle amounts owed to suppliers, often well beyond the agreed date.
The article explains that, based on the three months to December 2010:
“Large companies turned the screws on suppliers, paying their bills 36.7 days later than agreed terms, up from 35.9 days in the final quarter last year. But small companies recorded the largest increase in their late payments, taking on average more than 22 days to settle invoices – three days longer than the same period last year.”
Why are firms taking longer to pay? A good question for students, who ought to be able to identify some advantages and disadvantages of extending trade credit beyond agreed contractual terms. Is the increase a sing of worsening cash flow problems? Are suppliers not chasing hard enough for payment? Was it the disruption caused by the snow? Many firms may have tried it on by explaining that they had “sent the cheque” but that it was “stuck in the post & snow”.
This new government initiative is very well timed for AQA BUSS4 students!
Culture secretary Jeremy Hunt is aiming to kick start a culture of corporate philanthropy this year to fill the gap left by public spending cuts. In this radio report, lasting just under 4 minutes, Will Gompertz reports on the aim to bring together the need for sponsorship of the arts or sport, with a corporate desire to be seen to get involved in the Big Society and provide that support.
Mr Hunt suggests that banks, which have suffered such a downturn in their public image, might find this a good way to rehabilitate themselves. But with an 18% drop in business donations, this is going to be an uphill task for the minister. What would their other stakeholders think?
This brief report could provide a good bridge from teaching the introductory topic of Stakeholders, to two of the new research themes on CSR for BUSS4 students:
(1) The potential benefits of Corporate Social Responsibility relative to the costs for businesses and stakeholders
(6) The extent to which governments should influence Corporate Social Responsibility
This lesson plan and associated resources, which are produced by the Citizenship Foundation, explain the credit crunch and also the Chancellor’s annual Budget. They are a great way to introduce students starting on AQA unit 4 to the thankless task that a Chancellor of the Exchequer has in trying to decide the best way to raise tax revenue and cut spending.read more...»
The last few years of choppy waters and a tougher business climate has pushed the economic environment further up the agenda for Business students. Firms look back with nostalgia for the NICE era (with non-inflationary, continuous economic expansion) that began around 1992 but came to a shuddering standstill by 2008.
Here are a few links (outside T2U) that might help you illustrate the changing economic environment. I’m starting with The Guardian, whose business website is catching up with other sources, and is a site I now regularly visit.read more...»
The main topic of this story on the BBC website is a new report by the British Chambers of Commerce, which says that while the UK’s service sector is suffering domestically, many manufacturers are enjoying an export-led boom. It gives a great example of clockmakers Smiths of Derby, who were suffering from a lack of domestic demand in the recession for their expertise in renovating and maintaining clocks around the UK from St Paul’s Cathedral to Arsenal’s Emirates stadium.read more...»
I fear for JJB Sports plc. In the run-up to Christmas I’ve had cause to get involved in a lot of sports-related shopping, both online and on the high street! I’m not convinced that there is still a viable business model for a national chain of sports sports which genuinely specialise in sporting goods (equipment and clothing).read more...»
This report on the BBC website highlights the shift, in times of austerity, away from browsing the High Street for luxuries towards browsing the web for bargains - one result is that on average 14% of shops in the UK are vacant, a massive increase from 10.5% a year ago. But, as ever, the answer to ‘Is the British high street a good location for retail businesses?’ is “It depends….”read more...»
General Motors (GM) – for decades the world’s biggest carmaker – have broken the record for the largest ever sale of shares, raising a whopping £12.6bn. Their shares rose 7% to $35.99 in early trade in New York, having been priced at $33 by the company. The sale marks what looks like an astonishing turnaround after the firm had to be rescued by American taxpayers in 2008.read more...»
Pontins is the latest household name to fall victim to recession and the credit crunch. They have been put into administration, meaning that the future of the company is uncertain, for both staff and customers. The problem is that the banks are no longer willing to give them credit – so although they have customers willing to buy, they face the possibility of business failure due to a lack of cash flow.read more...»
Over 10,000 colleagues have now downloaded our cash-flow murder mystery activity - Cash Flow Clue-doh! And we’re getting an increasing number of enquiries asking what the solution is!read more...»
According to The Economist the consumer goods multinationals like Procter & Gamble (P&G) and its archrival Unilever, had a grim time last year: profits plummeted. This year has been only slightly better. Economies are still ailing, and the cost of raw materials is climbing. But there is something else happening. Basic consumer goods were long assumed to be more or less recession-proof. Shoppers may not be able to afford Dior dresses or Cartier watches, went the argument, but they still need loo paper and detergent. Yet people are finding ways to save money even on daily necessities.read more...»
An interesting short BBC article that reports that the number of new businesses set up in the UK during the first six months of 2010 was the highest amount in more than a decade. This was a 51% rise on the first six months of 2008, when the UK first went into recession.read more...»
The recovery may be a bit feeble (estimates have growth have recently been revised downwards) but it is now a year old. There’s the VAT increase (which rises to 20% in January), cuts to government spending and low wage growth still causing some alarm (fuelling fears of a ‘double dip’ recession). But where has current growth come from?read more...»
It looks as if this really is the end of the line for the historic film studio behind the James Bond franchise. Metro-Goldwyn-Mayer (MGM) have been looking for a buyer for the last few months, but their £2.5bn of debts have inevitably put off most potential suitors, leading to the present situation.read more...»
As A2 students start to broaden their thinking about the influences on a business’s decisions, they have to learn about local and national government revenue raising and spending. I often find that they don’t know the different roles of local and national government, but an interactive device which the Local Government Authority is about the roll-out to all councils websites might help with that. The idea is to ask the public to play the role of council leaders in deciding where to make cuts in spending, changes in employees pay and in the fees charged for various services, in order to achieve the required cuts and keep any rise in council tax to less than 5%. It has been trialled by Redbridge local council in London, and you can see it in operation on their website.
We did! Mintel have reported that sales of ‘pastry- based savouries’ are rising by 5% a year, with the beef pie outselling all the rest.
They think this may be down to the rise of the gastropub, featuring pies on the menu and repositioning them as a viable meal rather than a snack. The manufacturers suggest that this is due to an increased demand for regional foods, with consumers “returning to traditional British foods such as pork pies and looking for authentic regional products with a long heritage.”
On the other hand, this is quite strongly at odds with a move towards healthier food, and might be more a case of people turning to traditional comfort foods during the stresses of the recession, turning the ;pastry-based savoury snack’ into the ideal ‘credit crunch’!. As this report suggests, pie manufacturers might need to come up with a strategy based on the ‘healthy version’ if they are going to maintain this growth in the market.
An interesting statistic here which savvy students will add to their notes - particularly those who want to demonstrate real-life evidence to their examiner.
According to statistics from the Bank of England, the amount of bank loans outstanding to UK businesses is now £471 billion, down from a peak of £503 billion in September 2008 (the month in which Lehman Brothers went bankrupt). Thats a pretty significant change in absolute terms, although the percentage change is less pronounced.
Nevertheless, that’s a big chunk of bank finance which is no longer on the combined balance sheets of UK firms. Students ought to be able to identify several reasons for the shift, including:
- Reluctance of banks to lend to firms during the recession / credit crunch
- A strategy of cash conservation by many firms, who cut back on dividends, capital spending and operating costs in order to reduce their debt and gearing
Do you like freebies or do you value ‘value’? A couple of years ago Travelodge stopped putting ‘free’ shampoo in their rooms. The logic is that customers would prefer a lower room rate than freebies.
What do you think? My wife loves those little bottles and sachets, as part of the excitement of staying in a hotel. However, after a few conversations I’m revising my theory. Freebies are an important part of staying in a ‘posh’ hotel, but perhaps Travelodge customers do value ‘value’. Especially since they may be paying their own room rate, rather than claiming it on expenses from their employer.
Now a new hotel chain, Tune, have opened up a super budget hotel that takes the concept even further….....read more...»
Over one third (38%) of small businesses in the UK have had cashflow problems during the past two years of economic downturn, according to new research from IGF’s ‘Small Business Survey 2010’.read more...»
There’s been an interesting news piece recently that shows how ratio analysis is relevant to Britain’s biggest nightclub operator, Luminar.read more...»
Why are we drowning in debt? Well, governments have to borrow because they are spending more money than they raise in taxes. Households borrowed to buy houses and splurge on consumer credit. But what about firms? Why did they take on such huge debts? The Economist has a special feature on debt, here’s a summary:read more...»
Cartching up on some extra research or AQA BUSS4, I really like this article in the Independent from a few weeks ago which summarises quite neatly the key strategies (mainly financial though) which UK firms undertook during the recession. Well worth students reading this one and adding a note or more to their revision sheets:
Key points (all of which we made in the BUSS4 workshops) include:
Strengthened balance sheets (more equity & cash; less debt)
Focus on reducing inefficiencies (i.e. minimising unit costs)
Exploit faster-growing economies in the emerging markets (particularly China & Asia)
Maximised cash flow by dramatically cutting back on capital spending
Action to reduce labour costs - but not just redundancies
After a period of dividend freezes or postponements, larger firms are now rewarding shareholders
Some good “macro” or big picture content there - the challenge for students is to identify and use more detailed, specific examples of these actions in their essays
A recession is typically associated with a reduction in business investment (capital expenditure). As students prepare their final research evidence, what does the data show in terms of the total capital spending by UK firms during the recent recession?read more...»
This BBC article is really useful for students researching how businesses responded to the recent recession - and it also features an entrepreneur who will be joining us for the Business Teacher Conference on 18 June 2010!read more...»
This short one-minute video report explains very clearly the problems a small or medium sized business faces when customers delay payments. It coincides with a report from BACS Payment Systems which says that typically businesses are receiving payment 41 days late - with many payments running over 90 days late. This means that businesses are effectively bank-rolling their customers, and are particularly worried as they find that increasingly the delay is caused not so much by a desire to pay later, but because of an inabilty to pay at all. One issue is the cost of administrative time spent chasing those customers, and another is the need to add an extra 20 and 30 days-worth of cash to the cash flow. All making it increasingly hard to businesses which have survived the recession to survive the recovery as well.
A fascinating research report came out this morning which is really useful for students researching the UK recession and for teachers who want to top up their understanding of what really goes on inside small and medium-sized businesses in the UK…read more...»
Here’s a great chart from our Economics bloggers which is really useful in helping students researching the recent recession in the UK…read more...»
It’s hard to take this one seriously, but perhaps you should give it a try. The Irish president, Mary McAleese, has launched a website asking for your views and ideas that could be developed into new businesses with the aim of creating jobs and “bringing back the feel-good factor” to the struggling country.
Maybe it’s worth a few minutes of business studies time to consider both the nature of Ireland’s problems and to take a strategic view of possible ways forwards. And there is €100,000 for the best ideas…..
Effective cash and working capital management has become a key strategic priority during the last 12-18 months according to a major survey of over 300 companies by accountants KPMG.read more...»
The recruitment sector has taken many hard knocks during the recent recession in the UK. As firms look to reduce their headcount (or at least minimise their payroll costs), their demand for recruitment agency services is bound to fall.read more...»
Here’s a useful stimulus resource from the Telegraph that would be good scene-setter for students embarking upon their research for BUSS4 in June 2010 / Jan 2011. The article attempts to identify a series of winners and losers from the recent recession in the UK. Its a mixture of personalities, businesses and industries. But useful none-the-less
The UK recession had many losers, but some winning businesses and industries too.
Can you identify any themes in this ist from MSN Money? The link has a brief write-up on each, although they lack in genuine analysis they might serve as a starter activity:read more...»
As students entering AQA BUSS 4 start on their research into the Recent UK Recession, they may like to use this BBC Recession Tracker to get to grips with the latest data on GDP, inflation, interest rates, jobs and house prices. It is updated every time a new piece of data is released and has links to useful related articles like ‘GDP Explained’ and ‘Understanding Inflation’.read more...»
Students taking AQA BUSS4 this summer are asked to research the recent recession in the UK, and the first research bullets requires students to consider “how the recession can create opportunities and threats for businesses and industries”
Here the BBC are reporting that Poundland and other everything-for-a-pound stores are expanding fast from 380 stores ten years ago to 742 at the end of 2009.read more...»
A cracking little video from BBC Look North featured some typically gritty Northern characters, some low-priced rabbits and a chimney sweep - the perfect combination for a business studies resource. The video is particularly useful as a way of illustrating how the recession encouraged consumers to switch their demand to substitute goods that offered better value for money. Personally, I prefer stewing steak to rabbit anyday, but I’m a convert to the idea of repairing products rather than simply disposing of them and buying new…
Businesses were not short of advice - good, bad and downright daft - for getting through the recession. This piece in the Telegraph had some pretty sensible suggestions for what entrepreneurs and managers needed to do…read more...»
A terrific article and audio interview clip on the BBC site that makes a great resource for business students preparing for AQA BUSS4 (UK Recession)...read more...»
Some great articles below are well worth reading to provide insights into how firms amended their strategies during the recession…read more...»
A very useful article in the Guardian takes a look at how flexible working arrangements thrived during the UK recession as employers tried to find ways of reducing production capacity and operating costs without always resorting to compulsory redundancies…read more...»
The actions taken by successful businesses during the UK recession provide a rich source of guidance for students wishing to improve their analysis and evaluation skills.read more...»
Buried deep in the “Earth News” section of the Telegraph today is this neat little mini case study on demand and supply. Various economic and social factors are having the effect of driving up the demand for Haggis. Some nice stuff in here about market size, market growth, new product development too. . The market leader in Haggis production is Macsween of Edinburgh. Students can do some follow-up research on this business here
If you’ve been amused by Jim’s blog about the unbreakable mobile phone that breaks you will have followed the link to a demonstration (that goes badly wrong) at the Consumer Electronics Show in Las Vegas. But didn’t the recession kill off all those huge events? Weren’t they supposed to be replaced with an internet equivalent? A recent Economist article argues that big trade shows should bounce back from the downturn.read more...»
There is good news and bad news for the charity retailers here. First the good news. Oxfam reports that its like-for-like sales are up by 5% compared with 2008. This includes a 7% increase in sales of books, and £2.4million of sales due to its online sales drive - a 70% increase in the year. This is very much in line with teh ‘flight to value’ during the recession, experienced by many other retailers of low-cost goods such as New Look, Primark and Asda which the Guardian reported last week is leaving retailers like M&S and Next stuck in the middle of the market.
On the other hand, Oxfam are also feeling the pinch over the donations that they receive in their shops. The same consumer caution that has caused their sales to rise has also led to fewer donations, which have fallen by 15%. Families are, they think, buying less and replacing fewer clothes and household goods, so they have less to give away. Mr McCullough, the charity’s director of trading, suggests that this could be taken as an indicator of whether the economy is really recovering yet. “Discretionary spending remains low, big sales are starting earlier and discounting harder, and we’re having to work harder than ever to maintain the high quality of donations.” Donations to Oxfam’s shops have “long been a barometer of retail trends in the UK, rising and falling in direct parallel with the strength of the high street - the current mood of optimism may be misplaced”.
Two stories featured last Saturday showed trends in High Street shopping this year. On Sky TV news there was this report into new ‘pop-up’ shops – temporary stores which can be quickly installed in some of the many empty retail units available at the moment (15% of all high street retail units are unoccupied, compared with 7% this time last year). Originally conceived for niche brands such as the temporary Marmite shop on Regent Street, in which Marmite fans can buy 100 variations on the Marmite theme – they have been adopted by chains such as HMV who want to take advantage of a gap in the Christmas market left by disappearance of retailers like Zavvi and Woolworths, but don’t want to invest in a permanent shop.
Tom White’s excellent piece on the rapid growth and success of Greggs could be used to compare and contrast with a piece of bad news for those of us here in Yorkshire used to getting our lunchtime nibbles from Ainsley’s…read more...»
A nice case study that we’re all familiar with, just by checking out our local high street. One isn’t a surprise in the current climate: the booming business of Greggs the baker. But I am surprised by the other trend. I was convinced that the froth on the coffee bubble would be blown away by the recession, but so far I’m wrong. Coffee shops continue to spring up across the land.read more...»
An excellent recent article in the ACCA magazine examines an interesting phenomenon - more businesses collapse at the beginning of a recovery than during the depths of a recession. Its all to do with working capital…read more...»
What do you think is behind it? Asda’s George brand has grabbed a 10.1% share of the clothing market, with Primark having a 9.9% and M+S pushed into third with 9.8%.read more...»
This brief video report from the BBC looks at the newly published list of the values of the Top 100 brands globally. A look down the list, which shows not only where they are now and where they were last year, but also how much the value of the brand is estimated to have changed in that time, gives some interesting reading, and it could be worth spending some time in class considering the reasons for these changes. For example, notable gains include:
- Amazon +22%
- Google +25%
- Food manufacturers eg Heinz, Kraft, Nestle all approximately +10%
- Value + quality clothing ranges Zara +14%, H&M +11%
Here’s the reason why executives at ITV are so worried about the current downturn and why newspaper and magazine journalists are collectively worried for the survival of their titles…read more...»