Geoff Newton: There's no magic solution to the economy's woes

Reading the Sunday papers has always been a rewarding experience for me - in a busy week I can make it last until the following Sunday unless my good lady has tidied the papers away or the cat has used them as a scratching area or dead mouse depository.

Recently, however, the money, finance and business sections have been rather depressing. I choose not to read The Mail on Sunday​, given its constant lambasting of the UK licensed trade, but I am an avid fan of the broadsheets.

However, headlines such as "How to survive the credit squeeze and financial storm" or "10 action points everyone should consider now to cope with the credit crisis" (my first thought was 'only 10!!') are hardly encouraging, and tend to put a real downer on Sunday evenings which can only be cured by a visit to the local for a few pints of IPA and a discussion with my mates about equity markets, commodity broking and global depression.

This soon degenerates into a debate about "Grand Slam Sunday" and the outcome of the Champions League and is only broken up when the landlord appears to bemoan the breweries and why he is going to have to put 20p onto a pint next week.

But what does all of this mean for our industry? The first point I'd like to make is that many of us have been here before, at least twice.

Now I consider myself to be approaching middle age (well, early 40s seems young to me!) but I can remember the economic downturns of the 1980s and 90s. Most of us survived and that was with high interest rates and high unemployment, two factors which we have not seen yet in this slowdown. I don't do the D-word and yes, my glass is always half full.

The Budget did nothing to help us and suppliers are squealing because the cost of raw materials is spiralling upwards, meaning that the burden of higher prices has to be borne by the customer.

Sadly, there is no magic wand to wave to make the issues we face disappear, but there are some simple practices that we can adopt. Most businesses fail because they run out of money. That is usually because of poor management, poor systems and control or too much debt.

Too many businesses that fail pay too much attention to chasing sales at the expense of controlling costs and overheads. They are driven by turnover, food sales and footfall and pay little or no attention to GP, operating margins and wages.

Debt is an interesting subject that is featured in most tabloids as frequently as binge-drinking is (we all know that the solution to that lies with Mr Darling and the off-trade). I actually believe that debt is a good thing - but you can have too much of a good thing, and too many businesses have gone under in the last 25 years for having too much debt.

Other businesses, particularly some of the big pubcos in the UK - most of whom are securitised, have significant (almost frightening) amounts of debt. But they are all well run, almost all of their debt is fixed, they have excellent finance teams and they will all undoubtedly survive the current economic slowdown.

For the rest of us, we should do our best to be good friends with the bank manager! Not easy for some but they are human and really do want to help most of the time. Most are receptive to refinancing over a longer term to reduce annual capital and interest payments, many will consider capital repayment holidays of up to two years, and others are happy to reset financial covenants at lower levels on a temporary basis.

What banks don't like are surprises. If you have a problem it is best to be upfront and honest - you might not like it at the time but it will undoubtedly help in the long run.

After a depressingly cold and very early Easter, spring is now here. One hopes that we will be blessed with good weather, further interest rate cuts and a gradual improvement in the economic cycle.

No-one expects it to be easy, but the industry is full of enthusiastic, quality operators who I know will survive and emerge with better, stronger businesses in the years to come.

Geoff Newton is managing director of GN Solutions Ltd. Geoff can be reached at geoff.newton@hotmail.com