Financial Perspectives

Muddling through just doesn’t cut it these days and never really did which is why one of the first things you should do when you’re starting a new business venture is to write a business plan.

You might think that you only need one if you’re looking for outside investment. Not so. A business plan is the route map for your business and even if there’s only yourself involved, you need to have that map around.

With that map, you have the signposts that you need to ensure that you’re going in the right direction and, more importantly, it’ll help you pick up on any problems early on when you’re a better chance to correct them. It’ll speed up your decisions too as it makes it easier to make the yes/no strategy decisions a lot quicker.

Don’t think that it’s something that you just do for the bank and then put in the drawer. A business plan is a living document. Things change and you need to take account of that as the years go by. For example, your competitors will surely change over the years and change how they do business too; you need to reflect that in your own plans.

Which is a very long way of saying that you’d be crazy not to take Trump University up on their free course “How to Write a Business Plan“. And, no, it isn’t a course just for us MBA graduates but is something for everyone in business or who would like to be in business.

With 20/20 hindsight, Northern Rock was an obvious disaster waiting to happen.

When a relatively small regional bank turned out to be writing 20% of all of the UK mortgage market, weren’t some warning signals coming up? After all, that kind of growth in market share implies a very aggressive approach to marketing and indeed on pulling in money to fund all those mortgages.

Bear Stearns, along with many pure investment banks, tends to have quite an aggressive approach to running it’s own book too As it turned out, it was a little too optimistic with the projections and ended up just as bankrupt as Northern Rock for pretty similar reasons.

The approach on both sides of the Atlantic was quite different. Whereas the UK government continued to dither about and ended up taking over the bank itself, the Fed was much more aggressive in going for what needed to be done. They simply transferred the bank to JP Morgan (“sell” isn’t the word to use given the price paid) and backed only the residue of the business that couldn’t be easily transferred.

Which is the right approach and what’ll happen next time around?

Unfortunately, neither is really “right” in the sense of being a workable solution to the problem of the debt crisis. In both cases, a signal has been sent out that significant banks won’t be allowed to go bankrupt and that the government will take over the highest risk aspects of any bank when necessary. I’m not sure that’s a good message to be sending out at the moment as it implies that there’s no risk too much.

On the other hand, would it be better to have let one of those banks go bankrupt? Northern Rock had a major slice of the UK mortgage market and large numbers of savers so letting it go wouldn’t have been good for the government at the next election for sure. Although Bear Stearns hadn’t as many private clients they’d have been pretty vocal ones given the amounts involved but aside from that the bank was a major player with many interlinking deals and would have caused severe repercusions had it gone down.

Sadly, it’s looking like these two banks are merely tasters of what is to come if the credit crisis isn’t sorted out very soon.

That list pretty much covers it for most people in the day to day run of events.

Travel insurance is something that you need once you set foot on a plane or boat. For the most part, it doesn’t cover you within your own country which is something to bear in mind if you make frequent business trips by plane. There are exceptions, of course, but look out for them.

Home insurance can sometimes overlap with travel insurance as the better policies cover many of your valuables when you’re out of our house which can avoid you needing to get travel insurance for things like valuable watches or other jewellry.

Car insurance comes, mainly, in three varieties. Third party insurance covers you when you hit somebody but doesn’t cover you nor theft of your car therefore most people go for the next option up with is Third Party Fire & Theft thus adding the fire and theft elements. They can be fairly cheap but you should always check the price of Fully Comprehensive insurance as I’ve found that as little as 10% more can move you into this type of insurance which isn’t much to pay if the person who hits you isn’t insured (not uncommon!).