Meet the little guys

Abby Couriers is more than just a business – it’s the lifeblood of Mark Giles’s family. The 41-year-old is a majority shareholder with his father, who started the business. Their wives are minority shareholders and Giles hopes to pass the company to his own son one day.

Giles’s father Reg is a former greengrocer who sold his shop when competition from the supermarkets became too fierce. At 65 and “petrified of retirement”, he opened a two-driver taxi company from a station car park hut in West Horndon, Essex.

That was 16 years ago. Today, the business has evolved into a pan-European courier service. Based in Basildon, Essex, it has more than 150 staff and offices in London, Hertfordshire and Northamptonshire. Giles took over the company four years ago when his father retired. Reg, now 82, still stops by to help with general handyman jobs or just to say hello.

The business has faced the usual struggles along the way. But never has it faced a threat like the credit crunch. “It’s been 16 years of real blood and sweat, no exaggeration,” says Giles. “We’ve been through tough times before and to lose the business now would be devastating.”

Luckily, Abby has been savvy about insurance cover – and it has been helped out by the government’s Enterprise Finance Guarantee (EFG) scheme.

The programme, launched on 14 January this year and running until March 2010, will support up to £1.3bn of new lending by banks to “viable small and medium-sized businesses (SMEs) with working capital or investment needs”.

The scheme has been criticised by some (see pages 24 to 27), but Abby Couriers met the criteria for a £100,000 loan from Barclays, one of the participating lenders. The government guarantees 75% of the loan.

“It was very important; we would have struggled without the working capital,” says Giles.

Abby posted a healthy turnover of £3.7m for the year to February 2008. But Giles expects the next set of results to be the first in which the company has not increased its turnover and profit. Many customers disappeared “overnight” as the credit crunch took hold. Abby launched an aggressive marketing campaign in response and won several new contracts, but working capital was needed to get these deals off the ground.

“Although it’s a government-backed loan, we had to go through a lot more than we normally would have if it were just a bank loan,” says Giles. “We’ve bought a lot of money off the bank over the years to develop the business. We’ve never had a problem but, with the economic situation, they are looking for more security.”

The EFG scheme is open to businesses with an annual turnover of up to £25m, seeking loans of £1,000 to £1m, repayable over 10 years. The only exclusions are businesses in the agriculture, coal and steel sectors.

When it comes to insurance, Abby’s broker, Neil Parker of Henderson Insurance Brokers, says it is the right time for small businesses to scrap cover for unlikely events such as terrorism – depending on where the business is located.

But they should not skimp on insurance important to the individual company and should always have business interruption cover.

“Extra cover depends on how much money they have,” he says. “It’s fair to say all SMEs are suffering. But they all appreciate that removing cover could cause them far greater problems if something goes wrong.”

These days, new suppliers to small businesses are checking how they have treated other companies they deal with. Finance companies, for instance, no longer automatically offer SMEs money to allow them to spread the payment of premiums over a number of months.

Like other brokers, Parker has been getting more phone calls as finance companies and other suppliers carry out checks. Some request sight of a policyholder’s account to see if premiums are being paid on time before an offer can be made.

Giles has trade credit insurance with Euler Hermes to cover Abby against losses from buyers’ insolvencies. But several of the courier firm’s customers have become uninsurable as a result of the credit crunch; it has been forced, for instance, to stop dealing with one client that had £80,000 outstanding.

It is increasingly tough to get credit insurance, but available options include Aon Tradeability, launched by Aon in partnership with Euler Hermes in January. In addition to providing cover for bad debt, it provides information on a customer’s ability to pay and a route to additional working capital finance.

According to R3, the trade body for insolvency practitioners, the insolvency rate for small companies is expected to rise to 18,440 – a 41% increase on 2008.

But Giles says thanks to the government loan, plus a well-rounded insurance package, his business should survive.

‘We’re in the heartland of where the best salaries are in the UK’

As a City lawyer, there were times when Vanessa Hutchinson would stay awake for three days and work straight through. Jamaica-born Hutchinson set her sights on becoming a top lawyer early on. After studying in Jamaica and Barbados, she did a masters at Cambridge and thought that when she reached the magic circle (an elite group of law firms), she’d have time to enjoy her success.

“You spend your whole life from 17 working towards the magic circle firms. Then you get there, you still work like the devil. The glory of hard work is to work harder; you watch your colleagues to see who blinks first.”

She decided to make a change and began making plans to open a Caribbean cafe-bar in the City of London. After spending more than two years fine-tuning her business plan, she opened Mahoe last July – smack in the middle of the credit crunch.

Start-ups usually take months to make a profit; it’s even tougher now. It cost £400,000 for Mahoe to make it to day one, including advance rent. Hutchinson got a £100,000 bank loan, then used her own savings.

Business has been OK but, with 12 staff, it’s a challenge to make ends meet. “Every day you have to juggle between making fast money and concentrating on your brand,” she says. “For example you could get £2,000 for an event. But you can’t have too many private parties or you lose reliability.”

Hutchinson is better placed than many start-up owners, however. She spent the first four months focusing on operations – hiring consultants and staff, and implementing sophisticated reporting and accounting systems.

She also cut costs by doing her own research. For example, after scrutinising her lease, she saw that her business insurance needed to be endorsed by several other people, such as her landlord, for plate glass cover. She says her landlord was unaware of the condition, but she paid the administration fees anyway to avoid any potential claims problems.

Using a consultant, she has even stress-tested her business against a potential rise in insurance premiums. She arranges her insurance through broker Glen Insurance, with her policy – which includes terrorism cover because of the location of her business – underwritten by Lloyd’s.

The cafe-bar’s success now depends on who comes through the door. During a downturn, people are less willing to splash out at restaurants. But Hutchinson believes the business is relatively recession-proof. Mahoe is neither posh nor cheap – it sits in the middle. Customers can also stop in for just a coffee.

“Even if people in the City don’t get their bonuses or salary increases, we’re still in the heartland of where the best salaries are in the UK,” says Hutchinson.

“If people see food as too much of an investment, they could reject it when times are hard. But if they see food and a good time as an escape from reality, then the business can survive.”

‘The loan scheme is a farce’

Tiran Aakel was desperate for a lifeline. Business News Television, his corporate television production company, needed capital so he applied for a £100,000 loan from Barclays under the government’s Enterprise Finance Guarantee scheme. But his application was rejected and it is now likely the business will fold.

“We submitted our business plan and financials and have never been in debt,” says Aakel. “We proved we could pay off the £100,000 in a short time but it wasn’t good enough ... We’re struggling to survive.”

Business News Television was founded in May 2006 by three partners. It produces short corporate profiles that are broadcast to commercial and consumer audiences around the world. But as more and more companies have cut back on marketing spending, the company has been left with a hole in its pocket. The partners wanted the loan to help expand into new market areas.

Aakel says the application was rejected because the government – which would have been on the hook for 75% of the loan – did not want to invest in an industry that it believes lacks potential for growth at present. Lack of collateral was also an issue – only two of the partners own homes and the trio was hesitant to enter into an unequal agreement.

But Aakel says: “It was about the media industry. But every industry is in the same position, everyone’s suffering. I think the loan scheme is a farce.”

In its first year, the company, which has business insurance with Hiscox, posted a turnover of about £1m. But turnover has since dropped by half.