52 roundtable: business analysis ... continued from previous page
Murray queried why profit margins were still tightly squeezed, despite businesses increasing their sales and the economy growing.
Tinniswood remarked that CH&Co was growing successfully and had recorded double-digit turnover growth in the past two years, yet clients are still seeking stronger financial incentives.
The reason is a fresh austere post-recessionary mindset among new customers coming to CH&Co in the past five years.
“There is no question that the margins you have to tender with are much tighter.”
supply-side problem, but we accept that banks still have a lot of work to do to regain people’s trust.”
O’Hanlon agreed that ample and inexpensive funding was available if companies could present a good proposal alongside robust and satisfactory support criteria. But, recessionary times had changed business culture. Today there were now no sacred cows or shoe-ins; everybody had to tender for funding or work.
“People are telling their suppliers and partners they want them on the train, but it will cost them something to join the journey.”
Hicks said the lesson of the recession had been “hunkered down businesses look at every pound and how they spend it.”
. . . and how to overcome it
O’Hanlon highlighted the disruptive effect on margins of online consumer purchasing. As customers trawled the Internet for bargains, pricing was forced down, along with seller margins.
Wendy Hart
She admitted that some competitor tendering had left her astounded and saying: “Blimey, what are they doing that we are not doing to be able to come in at that price?”
Such undercut tendering was providing exceptional value contracts for customers, but barely making the work commercially viable for the providers.
“We have got hungry competitors out there, but at this rate, if margin squeezes and squeezes and squeezes, in 10 years they will have done us all out of business.”
Hicks said margin squeeze was often the result of people aiming for growth. “It’s very easy to put on business if you take on work for no margin, but it’s not sustainable business.”
Abundant liquidity had forced down the cost of financing. “Rates are at a tipping point, almost as cheap as they have ever been. Is it tougher now to get a loan agreed? Yes it probably is, and the toughest thing is the legislative requirements around account opening, which can take longer than any credit approval process.” Larger companies with longer and stronger credit quality than SMEs might gain funding more easily, he suggested, not least because they had more funding avenues to explore.
With lending margins down to record lows it was noticeable that many corporates were taking the opportunity to undertake ‘mend and extend’ loan refinancing to reduce their costs and lengthen their loan facility period, added Stradling.
“All our internal indicators would suggest that funding has more a demand-side problem than a
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“As an industry we weren’t ready for that, but now we are beginning to understand and develop more of our customers’ actual requirements.” Better holistic customer services had evolved. He exampled a new Ridgeway video service that shows actual vehicle faults or damage so that customers can fully understand and confirm the need for repair. “We are using technology to increase trust, and our margins are gently improving.”
Stradling echoed similar customer service improvements in banking: “We have changed in our approach. Our aim is now to add value. We don’t lead on price, and while credit quality is sacrosanct, we have always got room to get great businesses on board at the right price for customers.”
Peter Kavanagh said property consultancy margins had held fairly steady because customers accepted that the service provided expertise and quality advice, but sales margins were under pressure because of growing competition on fee rates. “When the market is good not every part of our business is good. Sometimes the bumps in the road don’t always come when you expect.”
Online property portals have changed the way people initially search for property to buy or rent, but there was still a requirement and demand for valued customer service. “We need to make sure our offering is very different to the Internet because if we do the same it will become a race to the bottom.”
Longer opening hours, local expertise, price negotiation skills and personal meetings were all typical value-for-money differentiators for property professionals, said Kavanagh, “but, today we also have to work a lot harder proving to people that we can and will get a better price for them and therefore it is well worth paying the agency fee.”
Lucking mentioned the time-saving and ease of Internet research sites and queried why more people didn’t buy or sell homes direct. Kavanagh pointed out that online sites provide generic information, not personal assistance such as explanations, negotiations, third-party
involvements, and selling skills – all best provided by a professional adviser or agency team. Also many clients were time-poor or liked to avoid getting involved personally in the transaction preliminaries.
Weaknesses or opportunities on the recovery road?
When the recession hit, things changed dramatically “almost overnight”, said Romans' Kavanagh. “From the early part of 2008 we went from what we anticipated might be our best ever year to our worst for some time.”
Ironically, the rapid change in the market proved helpful to Romans. It forced the company to respond quickly to the business challenge and make changes. “Some of the things that happened in 2008 were very good for us.”
Internal decisions led to organisational changes and a fresh strategy; the company enjoyed a period of good-value acquisitions culminating in a MBO last year. Now the price of acquisition has gone up, but “this year really will be the best we have ever had by all measures,” added Kavanagh.
“If you had a stable business then, like we did, that period was also good for recruitment too. We recruited more people of a higher calibre in that period than we had ever recruited before. Now, it is harder because everybody is trying to recruit.”
Jon Stradling
“When you look back at the recessionary period, it was not all doom and gloom. There were real periods of opportunity and now things are quite often more competitive than it was.”
Hart agreed that “through the floor” valuations during the recession gave acquisitional growth opportunities to those corporates strong enough to take them. “Corporate finance was pretty much non-existent in 2009, other than around distress.”
The recession had benefited the professional services sector too by creating an imperative for the review of traditional structures and practices, particularly with service elements becoming commoditised by consumers. “The fat in the system came out of it because clients could not afford to pay for it. Looking back it’s had a real benefit on a lot of business models.”
Lucking’s company recruited well during the downturn, and because of its stability avoided recruitment poaching. “Now, things are booming, companies that were quite frugal are throwing
THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2014
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