Monday, 19 January 2009

Green shoots? Not yet!

Clearly the economy is at the forefront of everyone's mind these days, which is understandable. We've noticed a number of small trends during the past few months, which indicate that the 'green shoots' mentioned in the British media this week may just be a teensy bit premature!

AEC firms are still at the sharp end of the crunch, with some faring better than others. It seems that those firms with a mix of projects and locations, whilst still feeling the pain, are better geared to cope with the downturn than those with all their eggs in one project sector or country basket. Architects continue to struggle with their business models, more so than their engineering counterparts, it would seem. 'Cost-cutting' is rife, along with downsizing of staff numbers, which is unfortunate, but I suppose necessary.

Another problem appears to be that of simply getting paid for work or services delivered. UK Government guidelines state the importance of paying all invoices within 30 days of receipt, unless a longer payment period has been agreed or the amount billed is in dispute. These days, most UK firms appear to pay on closer to 60 days, and large firms are the worst offenders! This causes a ripple effect throughout the economy, where smaller suppliers have to expend their energies chasing debts, instead of generating new income, and in turn are forced to pay their own creditors late.

It's a vicious circle - and don't expect any help from the banks; I spoke to a 'Relationship Manager' last week at a large British Bank (3rd largest in the UK) and their advice was simple; 'Stretch your creditors as far as you can'(!!) So the banks, in their efforts to make record profits, single handedly wipe out much of the existing world economy as we know it; they go cap-in-hand to their respective Governments for a taxpayer 'bail-out', they take advantage of falling interest rates, at the expense of businesses and home-owners (by not passing on the full rate cuts), and when you ask for their opinion on cash flow their advice is simple - don't pay your bills! Great!

In fairness, I think the picture appears to be different in the US, because every deal we've done in the past year Stateside - every deal - has paid their bill either on time, or ahead of the 30 day terms. What a difference in attitude! Hopefully with the incoming President this week, we'll start to see more of an upward spiral happening in the global economy, led by the US stimulus package currently under discussion. ENR posted an interesting article about a breakdown of the money last week:

But receiving an injection of capital is only part of the answer. The former Trade Minister Lord Jones, when describing the efficiency of the British Civil Service, told the Commons Public Administration Committee in the UK this week; "Frankly the job could be done with half as many (people). It could be more productive, more efficient, it could deliver a lot more value for money for the taxpayer."

As well as securing new deals or lines of credit, it is still vitally important for firms to focus on productivity, and delivering more efficiency from less resource; particularly on projects where taxpayers' money is on the line. And let's face it - that's most of the new projects in the pipeline!

My read on the market, for what it's worth, is that we seem to be bottoming out on the worst of the slide, and will soon start the slow climb back up to 'normal' trading conditions, which are still 18 months away. It is my strong belief that by helping each other, we'll all survive this economic downturn in one piece - and hopefully be a little bit wiser than we were before!


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