Economic Crisis Tips

That is sometimes a really good thing because it is then that we actually realise what we waste money on. Not to mention that once you begin to cut back you can see that you are still OK and that if you had saved some of that money over the years you might have $30k in saving’s right!:) I know that a lot of us are now forced into being more conscious of what we are doing to the point where people are actually growing their own vegetables and using their mind’s to think outside the box a little more. We have had to do this for Millennia really so it is no different now. See what I mean there? You see that a perceived negative situation can bring about forced change that actually starts us thinking a bit more about being industrious instead of just living or existing each day like a cycle of negative perceived reality of the downturn, which I think is wrong anyway.

What can you do now to cut back? What can you do that might have a profound affect on your next ten years of life? What changes can you make that might seem quite small but could have quite large positive changes to your financial/mental/physical future? It might be something as simple as eating more fresh grown vegetables or fruit which helps your health right!:) Try and figure out in all areas of your life where you start to gradually implement positive changes that will assist you in a brighter and more abundant future. I bet you will have at least a few things you can do this week, I know that I have!

we are currently in a financial crisis or economic downturn. Now this can actually be a good thing. How? Well it is because it will get people to think outside the box when it comes to spending. Actually when there is mass panic about money is when most clever people make money because everyone else is hanging on for dear life to what they have and taking no risks. So how can you save more money now and create a secure future? You can start by looking at your shopping list. How much rubbish do you buy? How much is spent on Cereals for example? I know me and my girlfriend will buy just one cereal that is healthy so not only are we spending less but we might even live more. Cool huh! It doesn’t take much to begin breaking down your monthly expenses and cutting back.

What you might even do is go for a smaller car? Or wipeout an expense that is not actually needed. Let’s say you go to the Gym ok, well how much do you pay per month? $30, $70? Well ever heard of running,swimming,walking,badminton,cycling,press ups, situps? You can save your monthly Gym costs right there. What about getting your hair cut, do you go expensive or cheap? You are getting the idea by now huh!:)

So first of all look at all of your outgoings, then eliminate any that are not needed at all, then adjust the outgoings to cheaper versions of what you buy, like value groceries. After that you can look at your fixes, what do I mean? Well Alcohol, smoking, junk food, commercial coffee shops, general luxuries that you really could do without especially for your health.

Let’s say that you save $50 per month well that’s $600 per year or $6000 over ten years, or $18,000 over 30 years. Cool huh! It won’t take much to get to that level of saving and then when you retire you will have maybe $20k in savings that you didn’t miss. This all depends on your ability to save more and then either live much more comfortably in the now or have a hefty lump sum when you retire. Hey it might even allow you retire a few years earlier.

What are these events today? 1) The Mortgage Melt-down. Major financial institutions in the United States are incurring billions of dollars in losses due to the loss in valuation of their investments in mortgage securities. The consequence for borrowers is that these institutions are less inclined to take risks when loaning money for fear of additional losses. And their regulators are demanding that regulated lenders raise their credit standards for borrowers to qualify for a loan. 2) The devaluation of the American dollar versus other world currencies. The U.S. government is spending ginormous amounts of money in excess of what it collect in revenue due to the political compulsion to spend taxpayers’ money, the war in Iraq, Hurricane Katrina (and other natural disasters) and the war on terrorism. This makes our currency less valuable. It makes importing to the U.S. more expensive. The American people have less money to spend on goods and services, and their money buys less than it did a year ago because prices of necessities such as gasoline are higher. 3) The current tendency of Federal and State governments to reduce funding for social services, health services and education because of inadequate revenues; this hurts individuals and businesses who have less money to spend on products and services which creates additional drags on our economy. 4) The diminishing value of residential real estate all across the United States. This is related to the mortgage meltdown and the fact that many people incurred debts that they cannot repay. The real causes of these events are complicated and beyond the scope of this article. Suffice it to say that these are hard times and hard times create needs for hard money loans.

What exactly is hard money? Here are seven examples:

1. A commercial real estate loan where the borrower receives funds based on the value of the property, usually 50% or less, at an interest rate higher than a bank would charge. This is the most commonly understood type of hard money. In this financing, neither the income from the property or the borrower demonstrably supports the repayment of the loan.
2. A real estate loan to buy a residential property where the borrower cannot prove their income. This may be accomplished with financing from a seller, the only party willing to take the risk of non-payment.
3. A small junior lien on income producing commercial real estate where the first lien is very large. For example, a million dollar second lien behind a ten million dollar first lien. Most lenders simply do not want to consider a loan of this type because of the potential liability for repayment of the first lien. It is ten times the risk of the secondary loan.
4. Most loans to people with less than excellent credit. Many loans are based on credit scoring. If you do not have a credit score that is high enough for the lender’s requirement, you simply do not get their loan and you may or may not be able to find a hard money loan to accomplish your objective.
5. Accounts receivable financing to construction contractors, medical providers and sellers of agricultural products. Most factors do not offer to these sectors of the economy because of the risks and complexities that are involved.
6. Purchase order financing for items with gross margins less than twenty percent. The twenty percent margin is a benchmark for sufficient profitability in a transaction to pay all financing costs and create profits for the business after all costs are paid. During hard economic times margins are squeezed. It is a vicious cycle.
7. Loans to businesses that are particularly negatively affected by the current economy. For instance, a loan to build a new lumberyard is impacted by the downturn in new real estate construction and a lower need for lumber. Most banks would simply decline to consider such a loan. The same is true for developers seeking to build new housing tracts or office building developments. This is not a good time to try to start a new mortgage brokerage company; although it may be a good time to be a hard money lender provided that you are very, very careful in assessing your transactional risks.

What do all of these situations have in common? In times of easy money these situations would be less costly to finance and more likely to receive funding. Today, the lender’s answer to your request for funding is more likely to be a polite but strong “no way”. Many lenders have effectively (if not actually) shut their doors. Many lenders will simply decline to lend on hotels/motels, gas stations, owner/user properties, properties with any environmental issues. Borrowers who do not have FICO credit scores above 680, with substantial net worth and income will find it is very difficult to obtain many types of loans. Fortunately, the door for accounts receivable financing is still wide open.

Finance news keep you abreast with developments in various critical sectors of the either the national or international economy. For instance if you may want to keep abreast with opportunities that exist for you in domains like forex trader then you need to know what is happening in line with developments of the volatile stock market and money markets. On another front you may want to know where there are affordable foreclosure properties that you can makes the most of to get yourself that dream real estate property as your residence or for investment.

Many people are getting hands on with financial matters because it does not really take an expert to get into financial trade circle and the make the most of what the industry can offer. What happens in the finance world affects your life directly it does not matter if it happens on a national scale or international locale. The fact is that the global economy in intertwined such that financial matters in the Australia economy for instance may affect the whole of the global financial landscape, which has an impact on the state of the economies, inflation, interest rate, etc. These are kinds of issues that get to affect you directly.

Keeping abreast with financial developments has been quiet a critically important aspect in the recent global economic meltdown. The global financial sector has been riddled with negative developments which cost some people huge profits from various business ventures. Keeping up with finance news helped people to stay on the look out and alert on the next move to do for instance in terms of example selling property, buying a property, getting a bank loan etc. the principle of keeping pace with financial developments is very important especially for entrepreneur who want to keep a close eye on the financial developments every second in order to position themselves for expediency and survival.

While a downturn in the economy can be an ideal time for finding great deals, there can be one issue with doing business under these conditions. The biggest issue is that when the economy isn’t doing well, securing financing in a timely manner can be much more difficult. Because banks and other financial institutions are dealing with problems, they aren’t as willing to quickly give out traditional means of financing. Instead, they act in a conservative manner that causes the process to take much longer. The reason this can be a significant problem is because in order to take advantage of the best deals that come up, you need to be able to quickly get financing. Good deals don’t last forever, so you need financing to help you purchase property quickly.

Fortunately, while many financing options may not be viable for these types of fast deals, there is an option that can work for you. Bridging finance can be used to purchase property quickly. The reason this option can work in situations when other financing options won’t is because bridging finance is directly based on the value of properties that you own. As a result, the bank or financial institution you work with doesn’t have to go through a lengthy process to provide you with the financing you need. Instead, they are able to quickly provide you with financing that you can then use to purchase property.

In addition to being available in a short period of time, another reason this is a great option for purchasing property is because the rates offered are generally competitive. While bridging finance doesn’t offer the absolute lowest rates of any financing options, they are still a very reasonable option. Additionally, because you can shop around among lenders, you can use an offer from one lender to negotiate a better rate with another lender.

Flexible terms are another factor that make bridging finance a good option for anyone who wants to purchase property quickly. With many forms of financing, the fact that you have to stick to a specific payment schedule can end up costing you money. However, with bridging finance, this doesn’t have to be an issue. Instead, you will have the ability to choose what works best for you. As a result of all the benefits that this type of financing has to offer, if you need to quickly purchase property, you should strongly consider using bridging finance to get your deal finished as soon as possible.

Experience tells us that the personal impact of major issues and changes is largely unknown until long after the fact, and it’s never the way it was reported or predicted. So then why so many headlines and articles and commentary? There is a very simple answer to this, but not an answer that’s easily swallowed. Sadly, headlines, hype, and drama sell (and prompt people to react and buy and sell assets, and all kinds of things).

We know that when you get down to it, sales are a core consideration for the media. We just choose not to consider it and overlook this. We’re hopeful that the information is reliable and sound. After all, if the information flowing from books, magazines, TV shows, and newspapers is provided in a way to drive sales numbers, then where can the raw facts be found? And since advertisers believe that I won’t buy or watch unless I see an impact to me or my family, then that’s the way things are spun.

After studying finance from an armchair (especially personal finance) for many years, and reading book after book from many authors on the subject, I then ventured into the financial newspaper and magazine world. (By the way, as far as books go there are only about 5 authors that I believe are worth reading and most of them have passed… but isn’t that really the test of solid information? It stands the test of time?). We’ll discuss books and newspapers in another article.

I won’t name the magazines, but would like to relate an experience. I picked up a fairly popular financial magazine at my Dentist’s office and liked the articles. They were candid, focused, and seemed factual with no speculation. That’s what I want. I don’t want opinions (unless they’re unbiased which is rare), speculation, or rhetoric which typically constitutes 75% of the articles I see. I want the facts. I saw a discounted subscription offer for this magazine, and I bought it. Before I received the first issue, a copy of a sister magazine (also pertaining to personal finance) arrived and I assumed that I had made a mistake when ordering. I leafed quickly through the magazine and none of the articles went on my “read this” list so I laid it aside. Two weeks later, the magazine I ordered arrived, and it was pretty good. Similar in quality to the first copy I had read, and interesting articles. So then why was there another magazine? What was the real difference? Every month about two weeks before receiving the magazine that I ordered, the other one would arrive. I never saw much in it of interest, but I decided to carve out some time and go through it page by page. As I went through it, I ripped out the ads as I went along. I stopped at a few articles and read partway through only to find they had sales pitches buried in them. Out they went, one by one, and not one page remained when I was through. Not one. Every page was an ad in some sense or tilted toward a sale… and this is a popular magazine. I determined that the reason I get it for free when I didn’t order it and don’t want it, is because it’s one big ad masquerading as a magazine. An entire magazine with no objectivity or substance, made up of ads and steering articles… and it’s popular. What are people getting out of this? I really can’t say.

After a few months of reading the magazine that I ordered, I found that it too was drifting toward speculation and more ads. Oh well… I gave it a try. Time will tell which way it goes. Even the association that I joined a few years ago which claims to be unbiased, is showing rather obvious signs of bias with sales as a goal. Since we really want to manage our finances, take control, work toward goals, eliminate debt, and establish and maintain a reasonable savings, these are not the articles and recommendations we need. I wonder if we’re not better off without any of them.

The good news: These experiences are my glaring reminders to stick to the basics, and to do the work myself. To manage our finances, we need to be diligent, vigilant, and responsible, and this means allocating time. It means not letting someone else do the homework and just following their lead. It means planning and reviewing, and nose to the grindstone debt reduction and prudent saving… acknowledging the fallacy in the quick-solution mentality. I form a plan toward my goals based on sound knowledge and principles, diligently follow the plan, and review and adjust the plan as things change. It’s pretty straight-forward and not terribly difficult… and this is the good news. Few articles will divulge the tried and true… after all, it doesn’t sell anything.

Wisdom is the proper allocation of knowledge, and prudence is the ability to govern and discipline ourselves using reason. These attributes should form the foundation of how we manage our personal economy. We build on these with diligence and perseverance toward our goals, and that is how we achieve them.

It is an official and organized market in which the exchanges of foreign transferable securities take place under the guidance of a centralized authority. The operation of the financial market rests on the activities of the share market. It is where investors from within the country and the foreign investors invest their money and participate in buying and selling of the stocks. This trade leads to huge amount of profit generation which is then utilized by the government and the private sector for various development activities. The government earns revenue from stock finance and so it is necessary for the swift functioning of a country and its economy.

The economic growth of a country can be ascertained from the amount of Foreign Direct Investment (FDI) that is received by its stock market. When investors have faith in a country’s financial possibilities, they invest in that country for long term returns. The individual citizens of a country can also benefit from it by investing smartly on the shares of companies that are profitable and have shown rapid improvement in their annual balance sheets.

Stock finance is ideal for aspiring entrepreneurs who intend to make good money in a short period of time without having to start any venture of their own; they can instead be share holders in established companies and reap the benefits. However, it is a very volatile and risky market and investors can also end up losing a considerate amount of their money when the economy is not doing very well. For example, during the recession period, stock value of various Fortune 500 companies decreased by more than 25 % which resulted in huge losses for the investors. Thus, it is necessary to have a good understanding of stock finance before taking the risk of investing in any shares.

On the one hand, there have been only two recessions of any real lasting power over the past twenty years. The first was in the early days of the Reagan Administration, when aggressive budget cutting and revenue loss occasioned by the David Stockman “supply side” economic strategy took an enormous bite out of government spending power, forced massive public borrowing, and triggered a recession. The economy soon grew itself out of recession, either through growth or excessive government deficit spending, depending on one’s point of view.

In 1990, another recession ensued, partly as a belated result of the 1987 Stock Market crash. This downturn lasted about two or three years, and the economy expanded once again. After a lengthy period of prosperity, the Clinton Administration declared the business cycle dead, and boasted that the combination of fiscal and monetary policy had permanently rendered it obsolete.

The bursting of the dot-com bubble allegedly triggered a recession in 2001, but it was short-lived enough to be barely noticeable (except, of course, to those who had their entire net worth tied up in it), and was soon replaced by a real estate bubble. By the time the powers that be admitted that there had been a recession, they declared it over, in the same breath. Not even the horror of 9/11 was able to take the speculators off track. In the meantime, hedge funds (truly a misnomer for what, in essence, are private equity funds) were able to generate unprecedented liquidity by “monetizing” all sorts of collateralized obligations…from so-called “sub-prime” mortgages to more conventional asset based lending obligations. This, in truth, was nothing more or less than a replay of the leveraged buyout craze of the 1980’s, in which speculators and corporate raiders took out the value of companies today in the hope that tomorrow’s earnings would be sufficient to replace the withdrawal. And if not, well, that would be someone else’s problem.

The major difference this time around, of course, is that the vast pools of liquidity generated by this mechanism have (after, of course, making some people incredibly wealthy), been largely plowed back into businesses as extremely low cost loans, mezzanine financing and equity. Too much money chasing too few deals has led some of these funds (and, indeed, more traditional lenders, who have to put their shareholders’ investments to work), to put money into marginal businesses, or to finance questionable collateral. Thus far, it has paid off, with the seemingly endless sources of easy money available, and the economy’s enjoying a very long “sweet spot,” of profitability and resource to capital.

The problem will come in one of two ways: either the economy will heat up noticeably, raising the cost of funds to businesses in the form of higher interest rates or reluctance to fund marginal profits, or perhaps losses, or the economy will weaken noticeably, which, though resulting in lower cost of borrowing, will ironically result in tighter lending standards, and increased business failures. You see, profits are infinitely easier to generate if the cost of money is essentially taken out of the equation. In more traditional business environments, debt service is an important component of the profit and loss analysis.

This phenomenon is already beginning to manifest itself in the highly publicized “sub-prime” mortgage crisis. Secondary and tertiary lenders (and in some cases banks and funds lending under the radar screen through the vehicles of these lenders), have been extending mortgages to homeowners whose creditworthiness is suspect, betting on an endlessly rising real estate market, and continued historically low rates. This system worked just fine for a long time, as the position of these lenders was protected by their enhanced collateralization and the ability of borrowers to carry their overleveraged positions through availability of easy money. Now, with the national decline in home values, and upcoming ratcheting up of adjustable rate mortgages, many of these loans will go into default.

What makes this situation particularly dangerous is that the original lenders, for the most part, no longer hold the paper. These mortgages have been “monetized” and place in pools of securities, managed in bulk by faceless, nameless trustees. When the mortgages default, these trustees will be forced to foreclose and will, for the most part, have no discretion to “work out” the loans. This is a potential disaster waiting to happen, especially for the middle class.

The cheerleaders for the economy and the stock market, who contend that the “sub-prime” and home value problems are likely to be contained and not spill over into the economy at large are, I believe, missing a salient point. A full two thirds of the U.S. economy is driven by the only weapon left in our arsenal: our seemingly endless appetite for consumer goods. After all, we scarcely manufacture anything in this country anymore. Ours is almost entirely a service and consumer driven economy. Large numbers of homeowner foreclosures, caused by overleveraging (in many cases, by homeowners seeking to retire high rate credit card debt) cannot fail to have an effect on consumer spending.

In addition, our very weak dollar threatens to make us a secondary power even in consumption. For example, China’s consumption is growing exponentially, with a rapidly growing economy and the largest savings rate in the World (not to mention a billion potential consumers). Chinese holders of stock brokerage accounts have more than tripled in the last two years. And what will we have to export to these folks? Cars? We can’t even sell them here. Technology? Well, many of the intellectual property originates here, but the products are much more cheaply manufactured abroad, as is the service component. Have you called Microsoft tech service recently? Did you get connected to the Silicon Valley or Bombay/Mumbai?

The competition around the World for our historical economic pre-eminence is fierce. If our lead in manufacturing goes (and for the most part, it already has) and our position as the great bastion of international consumerism diminishes, we are threatened with becoming a second rate economic power. And all the easy money in the World will not save us from that.

The business cycle may, indeed, be a thing of the past, but not in the way it has been advertised. This time, we may not recover so easily from the downturn. That downturn may yet be a long time coming, what with the almost conspiratorial partnership of business, financial institutions, the markets and the government to inject oceans of liquidity into a system which depends upon all of our acquiring stuff and spending well beyond our means. But underlying all of that cash, we must have a solid profitable business base. Therein (and only therein) lies our only hope for future economic dominance.

The founders of EP took advantage of the final phase of the UK’s electricity industry deregulation in the late 1990s to set up a company specializing in the supply of electric power to small and medium enterprises (SMEs). Aiming at a well identified ($4 billion) niche in a large ($34 billion) total market, they chose their company name with good reason. They saw an opportunity to offer lower prices to a steady market segment, provided that they could run their new operation in a very lean and efficient way. The traditional Public Electricity Supply (PES) companies had a high-overhead infrastructure and still carried a heavy bureaucracy from their pre-deregulation days.

Economy Power had to be fleet of foot in all aspects of the business and most particularly in customer acquisition, billing and cash management. From its entry to market in July 2000, the company aimed at SME commercial customers who have higher energy consumption than domestic consumers, and who would be easier to transfer to a new supplier on the basis of price than larger corporates might be. While the PESs shaved their prices to the big boys, they paid little attention to cutting prices for SME energy buyers. Even so, to break into the market with an unknown brand, EP not only had to manifest its offer through the company name, but they also had to ensure that they could keep their own costs much more economic than the competition.

Lean Start, Lean Burn

For a company that had turnover at the time of its sale about five years later of about $150 million, it was started by its four founders with a tiny capital of a few hundred thousand dollars and a bank line of finance of under $100,000. From the time of the startup’s first business plan, it was intended to seek a realization or cash-out about five years later. This meant the business had to become profitable quickly as well as grow fast. One of the other entrants to the market, by comparison, was bankrolled to the tune of nearly $100 million, in sharp contrast to EP’s initial capital-a tenth of that sum.

Top managers Jeff Morgan (Chairman), Peter Darwell (CEO), Ronald Kirk (Deputy CEO) and Robin Fuller (CFO) sought additional funding, making several presentations of their business plan. One of these led to an offer to back the company with over $1million for a 49% stake (reducing to 30% if targets were met), but well into the due diligence process the backers got cold feet. Another investment offer collapsed, even after a positive due diligence process, on a change of policy at the funding firm.

In 2001, with a year’s delay, EP got private funding of about half a million dollars, but cash was still very tight, obliging the company to have very clear strategies to make the operation a success.

The first of three key pillars of strategy was to obtain a favorable contract with an electricity generator and fortunately, EP was able to negotiate excellent terms with the chosen generator. In addition and as part of the deal, the generator that worked with EP supplied a line of credit for several million dollars on favorable terms.

Buy-In the Best Services

The second pillar of strategy was to outsource the billing and registration process in exchange for a long-term contract. Hyder Business Services, a part of Hyder PLC, already a major player in the utilities business covering the whole of South Wales, supplied special customer registration and billing systems. It was vital for EP to prove to the electricity regulator that it could plug into the industry network to send and receive data-flows between all the companies in the industry-the Data Transfer Network (DTN).

Later, in 2002, the billing services business was purchased and became a key component of the company and one of its special strengths.

Sales Growth and Customer Retention

The third key pillar of strategy was to build sales through brokers working on commission only, albeit with generous bonuses based on “stock option equivalents.” Not only that, but what Robin Fuller called EP’s “dynamic cash flow” model was a vital component, because the company never had substantial cash reserves.

EP always waited until one of its in-house sales account managers was able to speak to a new customer to confirm essential contract details before shelling out commissions to brokers. Thus the company managed to avoid losses when customers defected. Indeed EP policy was for commissions to be “clawed back” where customers did terminate their contracts. Brokers had every reason to ensure contracts were correctly sold in the first place, and that customer satisfaction was the order of the day.

Sticking to its chosen market segment, EP only signed business with customers who purchased $1,000 or more of energy each year. Thus they avoided the bulk of potential loss from customer defection or business failure. By November 2003, EP had already gained a 4% share of UK SME electricity market share by volume (source: Datamonitor).

Cash Flow the Key

The cash flow horizon was never more than a few months, even by the time the company had thousands of customers. Robin Fuller comments in an understatement, “It was interesting to see how our sales receipts balanced up to our outgoings. Sometimes it was nerve-wracking!” The cash constraint meant that growth was not as fast as desired. However, if EP had gone for growth in a gung-ho fashion, management might have not have considered strategic and tactical decisions quite so carefully.

They had to pay very close attention to the quality of new contracts and recovering cash from debtors. Since they worked with commercial, rather than domestic customers, no supply started before the customer’s status was checked, payment was up-to-date with previous suppliers, and signed electronic (direct debit) payment forms had been received. Too many defaulters in the early life of the company would have stopped EP in its tracks.

It’s interesting to note that several much better-funded rivals went bust or were taken over in fire sales. The company always traded up to its near-term cash flow resources.

By the time of the sale of EP in June 2005, only about four years from active startup, the company had added some 40,000 contracts, which demonstrates how the focus on sales and cash flow management can produce spectacular results.

Highly Motivated, but No Excess Staff

At the time of the company’s sale to a major generating company, when it had sales of about $150 million, there was still a staff of only 250 people (even though some direct competitors had relatively fewer people, but with even more contracting out). However, the company did not include a payroll of large numbers of middle managers, unlike their bigger rivals. On the other hand, everyone in the company either had stock options or received a share of the eventual sale proceeds.

This was an unusual practice for a supply company, but it built loyalty and interest in the company’s success. Outside of the Board, there were no highly paid ex-industry managers, and nearly all the middle managers were young and had been employed for their wits and potential, rather than track record. In addition, there were bonuses paid for on-target cash collection performance. This emphasized the company’s determination to manage cash very tightly. One of EP’s direct competitors had payroll costs one-and-a-half times higher.

Realization was the Intention from the Start

The company’s founders had set themselves a goal to achieve EP’s sale or float within three to five years. The directors considered two realization options. The first was an IPO on London Stock Exchange’s AIM (Alternative Investment Market) or a full LSE float. The second was a trade sale to a quoted company or a piecemeal sale.

The IPO route was a costly and time-consuming option. It became clear that a trade sale was the way to go and it could have been either to one of the big existing players in the UK energy market or to a US company looking to gain a foothold in the deregulated UK market. The US companies might have been possible buyers of EP, but the timing was not auspicious.

A rival supply company had been bought by Centrica, a leading quoted energy supplier, in a deal that took only a few months to conclude and this helped EP to opt for such a route themselves. As a supply company with no generating capacity, EP would always be exposed to wholesale energy price movements. The big boys had both generation and supply, and thus were in a better position to manage prices.

Powergen, the country’s largest integrated energy business and part of the German multinational, E.ON Group, purchased Economy Power in June 2005, reportedly for $50 million. Thus the realization objective of EP’s business plan was achieved. The actual price of the deal was not officially disclosed, but the directors have now moved on to start new businesses using the experience and capital gained in the creation and building of Economy Power. Being the business name is clearly a formula that works.

Lessons Learned and Applied Fast

Not only did EP have a fast growth, but during its short independent life the experience gained by the entrepreneurial team enabled the founding a family of firms using the lessons that running EP had taught.

Three new firms were founded as subsidiaries of EP before the company was sold, but did not form part of the sale, since they were outside the interest areas of the buyer. The three EP ‘children’ are ECO2 Limited (renewable energy generation), Economy Calls Limited (telephone services) and Economy HR Limited (human resources consulting).

ECO2 was created initially to provide EP with sufficient renewable energy to meet its obligations under the UK Government’s Renewables Obligation that required licensed electricity suppliers to source a specific and annually increasing percentage of the electricity they supply from renewable sources. It rises from 5.5% in 2005/06 to 15.4% by 2015/16. Apart from the obligation itself, the Government estimated that the initiative would provide support to industry of £1 billion a year by 2010.* This was clearly an opportunity not to be missed.

Jumping at the Opportunity

The Directors of the Economy business decided to go well beyond their legal obligation to produce 20 MWs and go for 100MWs of energy. Now independent of Economy Power, ECO2 Limited is run by the old shareholders of EP (70%) and three industry-experienced managers who hold the remaining 30% of the company. ECO2 now (in 2006) runs four landfill gas sites producing 6.2 MWs and is actively pursuing ten windfarm sites throughout the UK. Four of these are currently the subject of detailed planning applications.

In the style of the EP realization, two projects have already been sold on to new owners for further development. The first is a 10.5 MW windfarm in the Grampian Region of Scotland and the second is a biomass plant in Port Talbot in South Wales that will produce 14 MWs from incinerating wood when completed in 2008.

Younger Economy Family Members Try Out Their ‘Wings’

Economy Calls, the telephone services company that sells calls and line rental contracts to SMEs looks most like its parent. This ‘child’ of EP has similar characteristics, particularly in its way of acquiring and registering customers through commission-only brokers. It also uses the same kind of customer service structure, billing and credit control. Not surprisingly and even though the company is in its infancy, Robin Fuller’s “dynamic cash flow” model is fully operational in this new startup.

Economy HR is even more of a youngster at the time of writing. With just five full-time staff, the human resources consulting business was started as a pilot project in EP and launched operationally in early 2006. The product is the sale of consultancy to British SMEs-the market the company knows well-to help them meet the ever-increasing burden of legislation relating to personnel, health & safety as well as grievance and tribunal procedures. The HR outsourcing marketplace is experiencing rapid growth potential for cost savings to be delivered by investment in external HR transactions and processes. Currently the most popular functions outsourced are training, IT and payroll, but opportunities to apply the ‘Economy’ way of doing business are offering a new challenge to the ‘Economy’ entrepreneurs.