FINANCE BLOG

I was going to try to be erudite on my own behalf today. To look at the current difficulties in banking, to consider what’s going on under the bonnet of the major lending institutions and to consider what effect this would have on the smaller operators (like SmallBizPod readers) who depend on the institutions for their funding.

I’m not a qualified economist, I grant you, but 20 years spent writing about business issues affecting smaller businesses ought to count for something, I thought. My problem is that other people have got there first, and done it better.

Luckily we’re in the world of blogs, so when I link to the stunningly clear explanation of exactly what’s going wrong by the BBC’s Evan Davis,who writes about the relationship between capital and lending better than anyone I’ve seen. More importantly he addresses the issue of why we should be talking openly about nationalising banks rather than seeing it as some desperate last resort.

I’ll admit I hadn’t thought much beyond the idea that nationalisation was A Bad Thing in economic terms. This is what being brought up in Thatcher’s Britain has done for me; nationalisation to me carries connotations of an outmoded form of politics and economics, and when someone like Davis analyses it objectively as a means to an end and cites examples in which it has worked, I begin to realise how foolish the dogmatic approach actually was (even more so when you consider I didn’t agree with Thatcher anyway).

We may have to consider the idea (he says as if it were up to us mortals) sooner rather than later. A report in the Guardian confirms shares in HBOS are falling even now amid rumours it’s overextended itself. Meanwhile cracks are appearing in the Bank of England and there are signs of a rate cut ahead.

Let’s hope it’s enough and in time.

OK, I think we’ll take all the digs about journalists going off that nice Mr. Darling because of the hikes on alcohol as read - suffice it to say a lot of us will be binge buying very quickly.

There’s a lot of positive stuff in this budget, though - and after Northern Rock there needed to be. It won’t meet the approval of every business; increased tax on larger cars is going to appease the green lobby but not people who need the vehicles for their livelihood, for example. The money to get people back to the workplace is welcome, though, as is the small drop in corporation tax. CGT remains untouched, in case anyone was wondering but the small firms loan guarantee’s pot will be increased and there will be funds available to get women into business.

Nothing dramatic or unexpected, then. There is more tinkering; the law that would have stopped husbands and wives splitting their tax allowance is delayed which is a relief as many thought it would be unworkable.

The really fun bit, though, is the threat to start taxing plastic bags if shops don’t start charging for them. It will be entertaining to watch the inevitable backlash against this one. At the moment loads of people have agreed that plastic bags are a bad thing, in fact I’ve seen only one view questioning the received wisdom that they are harmful. Noticeably I haven’t seen much coverage of the actual science behind getting rid of them. I wonder how long it will be before someone starts asking: are you *sure* about this..?

It’s official - the minimum wage will go up as of October, reports the BBC. And although they haven’t put anything on their website yet, the Federation of Small Business has circulated its approval to all the journalists it knows. At least, their argument runs, the amount is in line with inflation.

A scan of the newspaper websites suggests this isn’t going to make much of an impression - nobody’s writing a great deal about it. What concerns me is the amount of people still falling below the minimum rate, though. I know of one businessman on an Internet forum who boasts openly that he pays his labourers in cash, and that they never complain about the low amount. Well, if you’re desperate to accept it I suppose you wouldn’t do any boat-rocking, would you.

The thing is, I’ve only seen one story about someone flouting the minimum wage rules. There could be more, lower-profile examples, but if so they’re well hidden. The laws would have more teeth if some people - particularly those openly boasting of ignoring the law - actually faced some consequences.

Meanwhile the smart money, says the Telegraph among others, says interest rates won’t be cut tomorrow. So, back to the doom and gloom this time next week,

I was looking at the Franchise Chat website the other day when a piece caught my eye - the Independent had reported on the sale of the Pret a Manger business.

The item had my attention for two reasons. First, being picky, I wondered why the franchise people were interested because Pret hires staff rather than operate franchisees, unless they misled me completely while I was researching the last edition of Guardian Books’ “Britain’s Top Employers”, which I edit (I could of course be mistaken about that, but the website doesn’t make any mention of franchises either). Mostly, though, it raised an important principle - what happens when the culture of a franchise changes an you’re stuck running part of the business?

I’ve spoken to people in this position before. One former head of a large food chain, which did operate as a franchise. He’d started running one of the restaurants in the 1970s, and when a chance had turned up to open his fourth one his funding fell through at the last minute. He called the franchise owner, said he was £20K short (at a time when you could have bought a house for that sort of money) and the man simply asked when he needed the money and how he could help. Managements came and went and the current owners would in no way have put up that sort of capital.

He felt that the current owners were missing out on the original culture of the business, which they undoubtedly were. Whether they were right to do so or not is a little beside the point; the question in my mind is what does someone do if the ethos of an organisation in which they have invested so much time and effort changes suddenly? Let’s consider if something big happened - say, if you worked for a food franchise that sourced all of its materials ethically and suddenly it decided factory farming was cheaper and there were no proven health benefits to organic food.

The answer to an employee would be simple - start looking elsewhere for work. For the branch owner in a franchise it’s different. Do you close down? Sacrifice the franchise and risk losing the customers you’ll have gained from the global brand? I’d be very interested to hear from any franchise owners who’ve had to face that.

Readers of this blog will realise I’ve been banging on about the Government’s indecision in the case of Northern Rock, so you can understand why I’m a little relieved that they’ve at last done something. Granted it was only because plan A had failed several times, which is infinitely less than ideal, but at least we now know where we stand. Existing loans won’t be hit and the bank is open for new deposits. I’m not exactly rushing to put my life savings into it.

That they’ve come to the decision at which they should have arrived months ago is evident to many. The Times’ Anatole Kaletsky explained the events in his column yesterday with his customary lucidity and also points out that the Government’s apparent objective is out of sync with any likely outcome. I can’t help agreeing.

More interestingly there’s a precedent. I’ll leave it to the BBC’s Evan Davis to explain it in his blog, but it seems this whole bank loses people’s confidence-state tries to find a buyer-state fails dismally and nationalises has been gone through at least once before.

Which makes it all the more bewildering that the Government didn’t take this step when it first became apparent it’d be a good idea - when, in the favourite word of our Prime Minister, it was prudent.

…regular readers who want to see more on franchises (Wednesday used to be franchise day on this blog but we expanded it to include finance as well) could do decidedly worse than to click here. You’ll find a podcast from The Franchise Show.

There are interviews with high-turnover franchisors and franchisees, as well as a blog dedicated entirely to the subject. Don’t imagine we’re abandoning franchises here, not a bit of it, but if you want more specialist information more regularly it’s a good starting point.