June 2009: Which SMEs will survive this recession?

 

Business Law Update
June 2009

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from Cousins Business Law

Gary CousinsWelcome to the June issue of the Business Law Update from Cousins Business Law. This month there are important tips from Steve Petty on how to negotiate a lease in a recession and guidance from Nigel Musgrove on how to apply for a premises licence. And there’s the start of a debate we hope will run and run. Will your business survive this recession? Join in the debate now.

If you have questions or topics you would like us to cover, email your ideas to marketing@business-lawfirm.co.uk.

 

Gary Cousins
gary.cousins@business-lawfirm.co.uk
0121 778 3212

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Contents

Feature

Which SMEs will survive this recession?

There has been much debate by economic commentators as to whether the recession has bottomed out and, if so, whether the recovery will be ‘V’, ‘U’ or ‘W’-shaped, i.e. will we come straight out of the recession as fast as we went in, stay at the bottom for some time before a recovery, or will we start to recover and then decline again before seeing sustained growth?

The thing is that, although there are plenty of green shoots around, there are also so many problems still on the horizon and therefore it is very difficult to predict; who knows which businesses will survive?

Looking at the SME sector, the current level of demand for products and services varies considerably in different markets. The food industry is proving to be particularly buoyant, especially for those supplying supermarkets. Last month, seasonal clothing and outdoor living products did well but restaurants and pubs have been particularly hard hit as people tend to go out less often (although increased prices seem to be offsetting some of the fall in profits). Manufacturing has been hit hard, especially those supplying the automotive sector, whilst the service sector, which has seen its worst time ever, is now showing some signs of recovery. The sales of big-ticket items, e.g. cars, furniture and large electrical goods, are still falling as people appear to be adopting a “make do and mend” mentality. And that in itself creates a demand for repairs – shoe repair chain Timpsons is apparently doing a roaring trade at the moment.

Despite the low demand, most SMEs are reporting that they are still more concerned with raising finance than any sales problems. Although bank lending to the SME sector rose in the 1st quarter of this year, a recent Bank of England report reveals that corporate lending fell as a whole from £9 million in April to £7.9 million in May. Banks have not passed the interest rate cuts onto their SME customers, although the gap between the base rate and the rates offered to SMEs are slowly narrowing. We have found that our clients are having to find other sorts of finance, and many more are reliant on savings and family support than ever before.

One particular factor helping SMEs at present is falling costs, with labour and rents being noticeably lower than they were a year ago. Many employees have been given the choice of redundancy or lower pay and we are seeing numerous tenants renegotiating leases to reduce their rental payments - the last thing a landlord wants is an empty property, especially as they now have to pay rates on it while receiving no income.

The increase in red tape and regulation has hit the SME sector particularly badly. European employment legislation is hitting hard and other Government regulators appear to be becoming far more aggressive in their approach to regulation as a whole.

As business is hard and money tight, we are noticing a considerable growth in disputes between directors or business partners. It is also a particularly bad time for a director or partner who wishes to retire when the value of the business is deflated and their shares worth far less than they once were.

On the positive side, confidence in the SME sector appears to be improving. The latest Monthly Business Survey from the Chambers of Commerce reports that 30% of companies believe turnover will increase by up to a quarter over the next 3 months, compared to just 22% who believed this a month ago.

As hard as it is to predict, we believe that a slow recovery will be seen towards the end of the year and escalate in 2010. However, it will certainly not be plain sailing for the SME sector as the knock-on effects of the recession are just beginning to bite. Many companies have struggled on as best they can, stocks are low, and insolvency practitioners are reporting that the number of company failures is rising and will continue to rise.

On the positive side, it appears that many new businesses are starting. The business networking site, LinkedIn, conducted a recent survey and nearly half of respondents said they were planning to use their redundancy money to start a new business. More competition or more niche players offering something no one else does? We’ll see.

As a small business ourselves we are interested in your views on what effect the recession is having, who will survive, what should the banks do to support us? Join in the debate via our blog.

Legal Update

Negotiating a lease in a recession

Steve Petty’s quick guide to lease negotiation is one of the most popular articles on our website and so we have updated the advice given to reflect the realities of negotiating a lease from a tenant’s perspective in the current economic climate.

Tenants are enjoying their strongest bargaining position for many years. With commercial property almost halving in value and rents continuing to fall, landlords are really on the ropes and now is the time to strike a really good deal.

Lease negotiation in a recession covers every angle of possible negotiation from refusing to pay the landlord’s legal fees to monthly rather than quarterly rent periods, rent free periods and getting the landlord to carry out improvements before you sign. This article is essential reading for anyone about to take on a new lease or negotiate their existing one.

For specific advice on negotiating your lease contact Steve Petty on 01926 629005 or email Steve here.

Plain English Legal Advice

Applying for a premises licence

If you have a business and intend to carry out any one of these activities, you’ll need a premises licence:

  • The retail sale of alcohol
  • The supply of alcohol to members of a club
  • Regulated entertainment (e.g. music, dancing, plays, karaoke, spectator sports, recorded visuals e.g. DVD)
  • Late night refreshment (hot food and/or hot drink between 11pm and 5 am)

A detailed article (Applying for a Premises Licence) on the Cousins Business Law website explains the process of application. This plain English guide summarises the key points to be aware of.

Risk assessment
You must undertake a risk assessment considering whether the intended use of the premises fits with the licensing objectives. Any identified risks need action plans to minimise them.

Designated Premises Supervisor
If you intend to sell alcohol by retail, then you will need a designated premises supervisor (DPS), who must hold a current Personal Licence.

Application Form
Your licence application form must be completed correctly, which must include details of any measures you propose to manage risk.

Premises PlanYou will need to submit a plan of the premises, showing the areas where licensed activity will take place, along with fire exits and safety equipment on site.

Making the Submission
Once you have all the relevant documentation and paperwork completed you need to send it to the licensing authority, at the same time sending the same papers to the relevant responsible authorities, such as the police, fire officer, and trading standards officer. Use special delivery to make sure they all receive them at the same time.

Advertise your Application
You must advertise your application, following specific guidelines, for at least 28 days. Provided there are no objections and your paperwork was all filed correctly the license will normally be granted.

The process is detailed and complex often it’s better to leave it to the experts. Nigel Musgrove Licensing law specialist at Cousins Business Law can complete all the paperwork and advise on risk assessment and the application process. Call Nigel on 01285 847001 or email Nigel here.

Useful Links

How to be a winner in a downturn

The Cranfield School of Management has identifies six behaviours that successful owner-managers possess. Why not test yourself against their list of behaviours - being in control, confident, distinctive, strong and wise as well as being ready to take advantages of opportunities that others will miss.

New guidance for food businesses

The Food Standards Agency (FSA) has published new guidance and best practice ideas for businesses whose staff handle food while suffering from infections. The guidance, entitled 'Food Handlers: Fitness to Work', is designed to help people prevent the spread of infection when working in the food industry.

Litigation Madness

Jurors’ rebellion doesn’t pay

It is the great principal of our criminal justice system, to be tried by a jury. Surely, it is our duty as a citizen to attend when called for jury service and most people (save for business owners of course) would relish the chance - wouldn’t they? Well, it appears from recent press reports that not everyone thinks so.

In America, a Mr Slye refused to serve on a jury. When he was told that he would have to prove “undue hardship”, he tried to use his extensive powers of persuasion to his advantage. He sent the court an affidavit (a sworn statement) saying, “Apparently you morons didn’t understand me the first time... I am not putting my family’s wellbeing at stake to participate in this cr*p...I do not believe in our justice system [and] jury service is a complete waste of time...I would rather count the wrinkles on my dog’s b**** than sit on a jury. Get it through your thick skulls. Leave me the f*** alone”.

Strangely, the judge decided not to leave him alone. He was summoned to the court under threat of arrest and, apart from having to serve on the jury, was ordered to apologise to all the court staff who had read his affidavit.

Also in America, a member of a jury, Mr Faber, simply did not return from lunch during a trial. When later arrested, he said that he was “extremely bored” in court and “just couldn’t take it anymore.” He was charged with being in contempt of court and we can’t help but wonder whether he found his own trial any more interesting.

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Cousins Business Law is a member of the Law Society & regulated by the Solicitors Regulation Authority. Head Office: Swan House PO Box 11543, Birmingham, B13 0ZL. Tel +44 (0)121 778 3212. Fax: +44(0)121 275 6155