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Mayan calendars and the media – 2012 isn’t necessarily the end of the world

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Thursday February 23, 2012 at 9:00am

The problem with the future is it hasn’t happened yet.

For business this means planning ahead is dependent on speculation. Of course, that speculation is based upon facts and figures, but how do you interpret them? In reality, we often depend upon other people’s interpretations and predictions, but only this week we’ve found cause to be wary of putting too much faith in the media.

The Institute of Chartered Accountants in England and Wales (ICAEW) recently released a report on the economy which makes for gloomy reading. In its assessment of companies’ responses to tough trading conditions, the ICAEW revealed some depressing statistics: 

  • The business confidence is negative at -9.3. This suggests a contraction in the UK economy of 0.2% in the first quarter of 2012 – the same as the final quarter of 2011. 
  • Businesses expect capital investment to grow by only 0.9% over the next year. Clearly there is a reluctance to invest in growth when the outlook is so poor. 
  • Salaries are set to rise by a very modest 1.6% on average this year. 
  • A fifth of businesses reported stock levels as being above average, suggesting a lack of consumer demand. 
  • More than half the businesses surveyed were operating at 20% below capacity.   

These are sobering findings and any business would do well to take them into account when planning for the future. The Government’s own plans for economic recovery were rooted in the prediction that the private sector would expand to deal with cutbacks in the public sector. This has not happened and in turn the Exchequer will not be receiving the boosted tax income which would have accompanied this growth.

As a consequence, many commentators have called on the Government to ease back on some of its restraints and introduce measures to boost business.

However, dark skies can also have chinks of light and it is important to consider the positives.

Bad News is Good News (for the Media)

Gloom sells. The media loves to leap on downbeat statistics and lay them on as thickly as possible. The danger for business is it gives the impression that the best option is to step out onto your high window ledge and take a deep breath.

Even the BBC article on the matter has been framed in a manner which makes things seem worse than they are. Business confidence:
“…shows a negative outlook, at -9.3 in the third quarter as against +8.1 a year earlier.”

True enough, but this fails to note business confidence was -9.7 in the final quarter of 2011. So whilst businesses are obviously still feeling negative, the situation is actually better than it was at the close of last year.

The BBC article suggests these figures indicate a move towards a double-dip recession, but other commentators take that mild improvement as a sign we might just avoid it.

What’s more, the survey also notes that whilst large companies are really feeling the pinch, SMEs are facing a better outlook. Over the next 12 months, these businesses are expected to take on more new workers than big companies, providing some cautious optimism, though this fact is buried away in the closing line of the BBC’s piece, as if it is barely worth mentioning.

Gloom but not Doom

It’s not pretty reading by any stretch of the imagination, but the ICAEW report does allow for a couple of breaks in the cloud. The smart business will take what heart it can from this and plan realistically.

Keep the backdrop of doom so beloved of the media in perspective and look at the facts which count – those relating to your own company and sector. Watch your key performance indicators and act accordingly. Make sure you also seek sound professional advice so you can make genuinely informed decisions about the future.

While the Coalition’s slogan, “We’re all in this together” has received plenty of ridicule, for businesses it is a point worth taking on board. Toughing it out alone is not a good idea; there is help out there if you choose to take it.

The Mayan calendar famously ends in 2012 and the media seem determined to make this their theme of the year. We are facing tough times, but it’s not the end of the world as we know it. With sensible, realistic planning SMEs can reach next year in good shape and maybe even with modest growth.

Andy Parker
Chartered Accountant and Chartered Financial Planner

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