Setting up in business: Le Christmas Crunch

Well, I just fancied having a break as we have been slogging away for almost six months – planning, starting, measuring and then employing. So, phew, it’s the Christmas break. Well haven’t we done well to get here? You certainly have. And now for a little topical help: the credit crunch that is currently the focus of so many media reports. What does it mean and what effect can it have on your small, fledging business – or even to larger, well-established enterprises?
What does it mean?
In layman’s terms, it means that the banks have effectively over-extended their lending to each other. Happy to take the easy buck (its effect is, predominantly, in the USA) they have lent extensively to each other and especially to lenders in the sub-prime market. As recession in the US has begun to bite, customers have started to default. Banks have become nervous and stopped lending to each other.
That should be fine but – and there always is a but – if you have agreed, say, £500 million worth of mortgages to your customers and then find you cannot pay them (because other banks are not lending to you) then … crunch. You cannot fulfill your commitments. What follows is a nasty spiral: as more banks become nervous, the more desperate you become and … the less banks will lend so, effectively, your business stops. It’s called doing a Northern Rock.
What does it mean to you?
Everyone talks about the cause but not many have mentioned the effect it has on the high street borrower because, ultimately, as I tuck into my roast turkey, do I really care if Northern Rock shareholders get a good or a bad deal? Surely, if you invest in a public company you must expect to take the associated risks that go with your investment? What really affects me, as I help myself to more roast potatoes, is the effect it could have on me.
And, unfortunately, it does have an effect on me – in the broadcast world.
In our world, Christmas is the time not of good will but of survival of the fittest. Our income is all based around Christmas TV and advertising. It’s as if everyone has the gas turned full on until December and then the pilot light goes out. People don’t pay their invoices. Nothing really happens from mid-November until probably mid-February. And no matter how well you have been trading, people just stop paying at this time of year.
Look at the failures around Christmas and New Year: Optex, VFG, Resolution. People pay out bonuses, throw parties, etc, etc but, with no income coming in, by the end of January there’s no money for salaries, rent, VAT, tax and, as you are at the top of your overdraft … crunch. You are in the same position as Northern Rock – except that the Chancellor of the Exchequer won’t answer your desperate phone calls.
So how can you avoid the crunch?
Plan for extreme circumstances: I hate to harp on about planning but crunch-avoidance is all about planning. First, make sure that all your current and future borrowing facilities are secure (I have just done this myself). If you are running a temporary overdraft ensure that the bank manager confirms it is authorised (some run out at the end of the year). If you have any other sources of finance: confirm they, too, are all current and valid. Then run a cash flow – it doesn’t matter how crudely you do it – adding up all the ins that you can guarantee and then deducting all the outs that you must pay. If the balance is ok then you will probably be all right. If it isn’t, think: “do I have to pay all the outs when they are due?”. I never advocate paying late but in a one-off crunch the relevant government offices are often sympathetic – so long as it doesn’t become a habit – so it is worth asking for a bit of leeway. Making these sorts of special arrangements, in extreme circumstances, could be enough to give you the headroom you need until your business income picks up in the spring.
Check what’s owed to you: If planning doesn’t work then think about what you have in the business, hidden from view. Many businesses are stuck for cash flow because they are sitting on either large debts or unencumbered assets – yet these can be used to negotiate borrowing. Work out what you have in theory, if not in practice, and use it as leverage. But – a word of caution: don’t leave it too late as lenders can’t always work miracles overnight (sorry, but I’m back to planning again).
Seek advice: Lastly, if this is all alien to you – or even if you know all about it but want an outside view – talk to someone, ask for impartial advice, throw a few ideas around. Most lenders – including us – give free, no-obligation advice to companies on how to manage their cash flow in times of crisis; it would be very shortsighted not to seek it.
If you plan now for the future of your business, in particular ensuring you can make it over this bleak income period, you’ll be able to enjoy the crunch … of crispy Christmas bacon with your succulent turkey, accompanied by a fine glass of wine. Have a happy New Year – and a prosperous one at that.
If you have missed previous articles in this series, or if you would like to comment on them by making comments on our Blog, see:

Tags: iss016 | finance | business | credit crunch | northern rock | N/A
Contributing Author N/A

Read this article in the tv-bay digital magazine
Article Copyright tv-bay limited. All trademarks recognised.
Reproduction of the content strictly prohibited without written consent.

Related Interviews
  • Azule Finance at BVE 2016

    Azule Finance at BVE 2016

  • Five Arrows Media Finance at IBC 2015

    Five Arrows Media Finance at IBC 2015

  • Azule Finance at BVE 2013

    Azule Finance at BVE 2013

  • Kit Financing with Medialease at NAB 2017

    Kit Financing with Medialease at NAB 2017

  • Pilat Media on BroadcastShow LIVE at IBC 2013

    Pilat Media on BroadcastShow LIVE at IBC 2013

Related Shows
  • Paragon Bank Technology Finance at BVE 2016

    Paragon Bank Technology Finance at BVE 2016

Making the Workflow Flow
Bruce Devlin - new The toughest things about being the Standards Vice President (SVP) is that everyone expects standards to be the most important thing. In all the systems that I’ve designed and deployed over the years, I've yet to find any production workflow that is 100% standards based. True, the core technologies may well be standards based, but the overall workflow is made up of many technology pieces from open source code, through de-facto delivery specifications based upon SMPTE or Trade Association Specifications that in turn depend on full, International Standards to work. I can already hear some folks saying "In the good old days, everything used standards", but I beg to disagree.
Tags: iss138 | pye museum | pye-philips | smpte | ietf | ieee | w3c | aes | Bruce Devlin - new
Contributing Author Bruce Devlin - new Click to read or download PDF
The World of 12G 4K/UHD Processing
Varun Patel Technology moves fast and when it comes to audio and video broadcasting, there is always room for improvements in audio and video quality and ease of production. One of the main goals of broadcasters and content providers today is to create an immersive experience for the viewers, giving them the feeling of being part of the viewed content. The 4K/UHD buzz has been in the consumer world for some time but what does that actually mean for the content producer?
Tags: iss138 | lynx technik | ott | greenmachine | yellobrik | conversion | Varun Patel
Contributing Author Varun Patel Click to read or download PDF
Industry Ready Broadcasting Students
KitPlus Cardiff Metropolitan University traces its roots back to 1865, when they opened their first school in an old library. Now Cardiff Met is a global, practice-focused and professionally oriented institution, committed to ensure every student fulfills their potential to make outstanding contributions in their future industries.
Tags: iss138 | newtek | live production | cardiff metropolitain | sports broadcasting | tricaster | cardiff devils | KitPlus
Contributing Author KitPlus Click to read or download PDF
TVFutures. No More Comfort Zone - Get a Placement
Michelle Brown I have often heard that any chance of getting work in the television industry is based quite heavily on who you know, and whilst that might indeed be true, I’ve also come to the realisation that it may also depends on what opportunities you seize and how far out of your comfort zone you might be prepared to push yourself.
Tags: iss138 | portsmouth uni | creative careers | placement | Michelle Brown
Contributing Author Michelle Brown Click to read or download PDF
News Out Of The Cloud - Technology At The Front Line Of Journalism
Stuart Almond Throughout history, journalists have always had to seek and adapt to new technologies to deliver news in a format and at a speed that consumers demanded. Today, recent technological changes in the media environment have led to another inflection point. If modern media outlets want to empower journalists to remain agile and turn news stories around quickly and efficiently, they have to start embracing new, innovative technologies, like cloud-based media solutions.
Tags: iss138 | sony | ofcom | cloud-based media | intelligent | Stuart Almond
Contributing Author Stuart Almond Click to read or download PDF