Optimism Abounds Despite Uncertainties Ahead

Posted: Jan 9, 2018
Tim Potter

We head into 2018 with some uncertainty and a degree of optimism. Many of our clients are doing really well and most tell us they are performing at least ‘okay’. The fortunes of businesses largely correlate to how well they are being run, rather than the wider economic environment.

Clients who supply brick-and-mortar retailers are having a tougher time and are concerned about the future, due to a lack of disposable income among consumers, the strength of e-commerce platforms and the tightening of stock levels. E-commerce clients are buoyant and are forecasting continued strong growth.

Our manufacturing clients supporting the oil industry are at last beginning to see their order books strengthening. Later this year we will be visiting leading manufacturer - Bentley to learn both best practice in manufacturing and how this business is faring in the wake of Brexit.  

The most painful issue for many of our clients is the knock-on effect of the weak pound arising from the vote for Brexit. This has put significant pressure on margins and on their cost base. Most have, to a reasonable extent, successfully mitigated the effect of these challenges and their businesses continue to make good profits.

Few clients are looking at significant increases in their payroll costs through pay rises or increased headcount. There is a big focus on increased efficiency and effectiveness. Our business planning and corporate strategy sessions with clients tend to be optimistic around profitable growth and opportunity into 2018.

The banks continue to want to lend money, and borrowing costs remain low, which is a great help – but there tends to be more hoops to jump through to get the funding. Bank of England stress tests on the banking sector demonstrate resilience to most of the ‘disaster scenarios’ they can envisage, which is reassuring.

Talent and skills in the workplace remain in short supply.

All the optimism remains, in many cases, at odds with conversations we have with London-based fund managers and investment bankers, and the business media – who seem to be predicting more of a picture of doom, misery and despair!

I am led to wonder whether, in our optimism, we are living in denial or are we operating in a northern entrepreneurial bubble, currently immune to the headwinds and the pain being apparently experienced elsewhere.

We are fortunate that we are enjoying the benefits of a vibrant global economy which is acting as a ‘pick-me-up’.

The consensus amongst our client base is that Brexit is a 3-4 year phenomenon featuring uncertainty and challenge, but that at the end of the process market forces will create a new norm which will be effective and will work well enough. It is in everyone’s interest for this to be the case.

Tim Potter - Managing Partner at HURST Tim Potter | HURST Managing Partner 

The great majority of our clients trade internationally, either buying or selling or both. 

Most are keen for a swift ‘soft Brexit’ to keep trade and the EU market place as simple and efficient as possible. I have not spoken to any importing or exporting clients who believe that a ‘lion roaring’ hard Brexit will make international trade anything other than much more difficult.

The emerging larger concern from our clients is the political uncertainty arising from a general election and the prospect of a Labour government. The greatest concerns are over the impact on the pound (and companies’ ability to sustain acceptable margins and an enhanced cost base), together with significant increases in taxation – particularly income taxes and capital gains tax including schemes such as Entrepreneurs’ Relief.

Our clients want certainty, to enable them to make the longer-term decisions around investment and ownership succession. For most, their business is their sole money box, intended one day for sale and retirement funding. 

A new phenomenon emerging in our clients’ strategic thinking is the ‘Corbyn plan’. Clients are asking for views on how to protect their savings and whether now is the time to consider the sale of their business. At a time of such change and challenges, and in an economy which needs investment and highly-driven entrepreneurs, such a distraction is of no help to anyone. If you are considering a business sale now or in the next few years I’d strongly recommend you speak with my colleague Nigel Barratt and his team.

Click here to contact the Corporate Finance team. 

HURST advises over 400 entrepreneurial clients in north west England whose businesses turn over £5m-£100m. The aggregate sales of HURST clients in the region exceeds £5bn.

As part of the new programme: "Executive Insight" we are holding two events with leading political figures who may be able to give you a valuable insight into how the political environment will affect you and your business.

On the 1st March we are holding a dinner with Lord David Blunkett, former Labour Home Secretary alongside one of our latest new clients Lancashire County Cricket Club. On the 23rd March we are holding a lunch with Graham Brady MP, Chairman of the Conservative 1922 committee.

To express your interest in attending these events please contact my colleague Lucy McCormick who will be managing the Executive Insight programme.

To find out more about this exciting new initiative or to register your interest in attending any of the events mentioned, contact Lucy McCormick either by clicking here or call 0161 429 2529