Trevor M Watson
Director
Davis Coffer Lyons
It is now widely accepted that trading conditions in the leisure sector are likely to be more difficult in the next 12 months than in the last few years.
The cumulative effect of higher interest rates (even if they have now peaked), together with the introduction of the smoking ban and general reduction in consumer confidence are all likely to affect trading potential.
It is possible that your business will also come under increasing pressure from your bank. Although the "liquidity crunch" is something that appears very remote, in fact it will have a profound effect on all businesses, if not immediately then soon.
The banks' appetite to lend has been tempered;
and although good propositions will always secure funding, bank margins have risen significantly, leading to increased costs for businesses in terms of interest rates charges
and fees.
Over recent years, banks have been competitively seeking new business, and operators who are dissatisfied with the service they get from their existing bank have found it relatively easy to change banks, often on much improved terms (apart from the bureaucratic nightmares involved).
My advice to operators at present is to maintain strong
and amicable working relationships with your existing
bank manager.
This is for a variety of reasons: if trading conditions become harsher, you might just need that additional overdraft facility or other financial assistance, and the opportunity to change your bank is likely to be more limited.
It makes sense to have a good relationship with your bank in any environment; it deserves to be kept informed of your trading conditions and business plans and should be seen
as an integral business partner.
No one knows how the "liquidity crunch" will pan out in terms of its effect on the general commercial market or indeed the real economy at large.
Nevertheless, the current level of uncertainty is likely to
be with us for some time in spite of an expectation of an interest rate cut in the near future.