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Posts Tagged ‘money’

Will The Financial Crisis Damage Small Technology Firms?

In Business on March 18, 2008 at 1:45 pm

The current crisis in the world’s banking industry is causing my quite a bit of concern right now.  Our web technology business is small but growing.  When businesses are doing well they’re more likely to spend money on items such as web design and web applications and we believe we’ve benefitted from that over the past year or so.

But what happens if our clients and potential clients start to suffer as a consequence of an economic downturn?

Problem 1 – Spending Cutbacks

During uncertain times, many businesses choose to be careful on spending outside of their company.  In particular they may look to what are perceived as cost centres (website updates, build and application development) as being something that can wait for a while.  If that’s the case, there’s going to be a slowdown in spending on technology unless it’s deemed as essential for the company to operate.

Problem 2 – Credit Freezes

Thankfully we’re based in the North of England – this is an area which is traditionally very conservative with money.  People don’t like to borrow money or use complex financial instruments and most SMEs in the North West still tend towards being self-financed.  However, this article’s aimed at everyone.  Business that rely on finance will face certain problems.  In particular, curiously, the ones that have a moderate but high risk position are the ones who face the biggest chance of foreclosure.

Why?  Well it’s time to think like a banker.

Example 1: This business has loans of £100,000, assets of only about £30,000, and sales have plummeted.  However, the business is still viable if it can renegotiate its loan terms.

If the bank decides to close this company it will definitely lose £70,000.  In renegotiating the loan the business will continue to  function, and the bank will get its money, albeit over a longer period.

Example 2: Another business has been far more careful with its money and has a £30,000 loan with assets of £100,000.  However, sales have died due to the downturn and income is poor.  They too need a renegotiation as their cashflow situation makes it impossible to meet the loan payments.

In this case the bank, needing to bring in money to improve its cash position, will be less inclined to renegotiate.  After all, if it closes the loan it will get everything back – the full £30k.  Their cash position is improved and everyone’s happy.  The business may struggle now because it’s now £30k down on cashflow.  In fact, it could even fold because suddenly there’s no cash left in the company to help pay its wages and bills.  Worse, it can’t even negotiate a loan against its assets because all the banks are being ultra-cautious, will take one look at the cashflow problems and decide to look for someone safer to lend to.

You also have to think very carefully about any secured loans.  In the event of a repossession it’s possible for the bank to get everything.  They may repossess your premises and resell them at a significant profit.  In many jurisdictions there’s no compulsion for them to share or give the profit to the original debtor.

Problem 3 – Price Inflation

Inflation is pretty steady in the UK still.  But we still have one massive problem – we’re starting to sell internationally.  Countries that trade internationally in dollars will have found their costs rising dramatically when dealing with EU based economies.  It’s not that long ago since a British pound was worth $1.5 – yet now it buys $2.  But thankfully there’s an upside – the more steady, more sensible and less loan happy mainland Europeans have found their Euro increasing dramatically in value.  It makes our holidays to Europe more pricey, but the upside is that our services look a lot cheaper to Europeans – so as one market declines, another has grown.

But it’s not all bad….

Opportunity 1 – Competitive Pressure

Businesses that are struggling will need to fight to compete.  No longer will money simply roll through the door as naturally as leaves through a courtyard.  Instead some firms which have experienced an easy ride lately with their easy finance, will need to get out there and find customers.  They’re going to need to invest in technologies that help push them up ahead of the competition.  This is where there could be some real growth in the web technology market – at least, for the companies that can give the best results.

Opportunity 2 – People With Time

If there is a downturn it’ll mean more people with less work to do – perhaps not needing to work so many hours, or even higher levels of unemployment.  For them the web will be one of the cheaper forms of entertainment available to them.  They’ll be getting into blogging, Web 2.0 applications such as Facebook, and even maybe dabbling a little and learning how to code themselves.  They’ll help the market to grow and will be enthusiasts for the business in the future.

Opportunity 3 – Weak Rivals Will Decline

One of the best things about a recession can be that the really weak rivals will suffer.  Web designers, for example, who churn out poorly thought out and over-priced websites will find themselves at a disadvantage to those with a reputation for positive results.  They’ll either have to reposition themselves more truthfully (at the economy market perhaps) or spend some time improving.  It’s also worth looking out for closing companies and seeing if you can pick up their past clients.  Filling a dead-man’s boots may not seem too ethical, but chances are it’ll be a relief for those clients to know there’s still someone around who they can rely on.

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Why We Hate American Software Companies (Well, Adobe)

In Business, Web Development on March 13, 2008 at 9:00 am

Actually, that’s a contentious one. We don’t really hate US software companies. Just some of them. Adobe in particular is winning no prizes for its pricing policy.

See the image below:

Adobe software is really expensive in the UK

Now, you may notice something… The purchase price of the UK software is, before taxes, £705 while the US software (presumably with taxes) is $999. I’m going to compare our tax free price with the US full price, simply because I can’t assume that the US price includes taxes – I just don’t know the US system that well.
Now if you’re not well up on exchange rates the figures may make the UK copy seem cheaper. But every one of our Great British Pounds will buy 2.03 of your now considerably Cheaper US Dollars.

So let’s work it out.

If bought in the US, the cost without taxes is:

US$999 = GB£492

If bought in the UK, the cost without taxes is:

GB£705 = US$1431

So there we go – we pay over 40% more to download Adobe Software in the UK than in the US. And pity us with our taxes – if you add VAT the price goes up to an equivalent of a whopping $1682. If there were shipping costs, or shop costs to take into account we could understand it. But this is software. It costs the same to deliver wherever the end user is if you’re using the Internet. While there are costs with accounting, they don’t add up to 40% extra.

The US economy isn’t doing that well, but do they really need to rape the wallets of overseas developers in order to improve the situation?

Oh, and I’ll leave it as an exercise to you to spot just how much of a rip-off the upgrade prices are. I wish I had a daughter just so I could forbid her from dating Adobe accountants and marketers.