Don’t get trapped in quicksand

When asked to review operating systems and strategic plans, I find it surprising that even in these difficult economic times many companies still adopt a lackadaisical approach to their financial controls.

These companies fail to recognise the need for strict discipline in respect of Stock turn and control but what is even more disturbing in the reaction to the Debtors book.

As more and more Customers seek actively to delay payment to Suppliers this element of business policing is even more critical.

When a Customer exceeds the agreed payment terms, they are in reality using the Supplier as an alternate (unsecured overdraft). I have seen this situation spiral out of control so that in a worst case scenario the Supplier is forced to keep “supporting” the errant Customer for fear of realising a bad debt. Think of the parallel to the recent Eurozone debts (Eire/Greece etc) – it is a slippery path.

Take a long hard look at your accounts receivable – are you happy to see 30 days drift into 60 and beyond? Have you considered the damage that is being done to your company’s financial position?

Opportunity and risk - the ying and yang of commerce.

Every business transaction contains an element of risk, yet at the same time how adequate are the mechanics and systems that are in place to manage these risks? 

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions be they large corporations or smaller SME’s. 

In the never ending quest for larger profits many of the saner measures of business were jettisoned. 

An analysis of the most spectacular flame outs all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings. 

There has never been a more pressing need to examine all areas of exposure.

A forensic analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked. 

It is far better to take remedial action such as a write down whilst you are in control of your own destiny rather than have a 3^rd Party appointed to do it for you .

Riding out the Storm

 Viewing the general air of gloom they now prevails in the current climate it is hard to remember the halcyon days of easy money (credit) and the all pervading feeling that the party would never stop.

There is no doubt the world and his wife embarked upon a collective spree for which we are now picking up the bill. With the benefit of hindsight the warning signs were there to see but these were readily ignored. One quotation springs to mind “They that sow the wind, shall reap the whirlwind"

The problem now is that as always there is an over-reaction and just as we never saw the top there is also the certainty that we will not see the bottom.

What is needed is a clear and unemotional assessment of the current climate, whilst few would dispute that difficult times lie ahead we are far from a financial Armageddon.

As always the markets are driven by fear and greed but the importance of sentiment should not be overlooked.

Until and unless the Doomsayers gain a sense of perspective it will be hard to imagine business and markets on a sustained stable footing.

Keeping the Customer satisfied

 In these times everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as times become tougher and business harder to win the level of service offered by many Suppliers is falling very short of acceptable standards.

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules Customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet. Customer service is not a difficult act to pull off – in reality all that is required is to give the Customer the feeling that their business is important and they are valued not just “one of a number” or even worse a nuisance.

Concluding the initial business transaction is often the easiest part of a business relationship, it is the “repeat business” which provides long term rewards. Those businesses that master the art of Customer service will emerge from this current difficult period all the stronger.

The Dragon ready to pounce

Since 1978, China's economy has doubled every eight years. Today, the average Chinese person has some ten times the purchasing power they had just a quarter century ago.

China was the engine room powering the Global boom of the early 21^st century, however there are signs now that the Dragon is catching its breath.

This is however only a temporary blip. For 18 of the past 20 centuries it had the largest economy in the world until the 19^th century and the industrial revolution.

China’s economy in 200111 was worth US4 11.3 trillion and forecast to rise to US4 18.7t trillion by 2016, whereas the US economy is forecast to grow at a slower pace in the same period from US$ 15.1 trillion to US$ 18.3 trillion.

At grass roots level households with an annual disposable income of US$ 10,000 are expected to quadruple from 57m in 2012 to 222m by 2020.

The implications are clear with dramatic impact to be felt on prices across the energy and agri commodity sectors.

At this time, European markets remain crucially important to China but with European economies in a fragile state the implication for Export growth is obvious.

You can’t always rely on the warning light

 

If you are operating a business in today’s environment you obviously relish a challenge, have you ever thought about taking up 3D Chess?

Particularly for the owners of SME’s it has never been harder to keep track of the various elements which are buffeting the business.

Now might be an appropriate time to run a check over those areas of the business most likely to cause problems in the coming months.

It is a self evident truth that most crises could have been averted by timely intervention. This is where an independent appraisal can identify areas of potential concern but more importantly the ways and means by which to address them.

The questions that need to be answered initially – are we positioned comfortably? Or are we in denial?

Everyman for himself

The new owners of Peacocks the clothing retailers have come up with a new wheeze – switching all their Suppliers to 90 day payment terms.

Such terms can only be served by larger organisation with adequate cash reserves. For the small to medium supplier it further ratchets up the pressure as Banks are unwilling to increase their credit lines.

For some time companies have sought to stretch the length of their payment terms by all manner of means both fair and foul.

As profit margins are further squeezed by increased operating costs the importance of maintaining cash flow is vital.

Business is hard-won in the current climate, but above all there has to be a commercial raison d’être for any transaction.

Mutual reciprocity has to be the basis for the Customer/Supplier relationship for it to remain worthwhile. 

Fiddling while Rome burns?

How often do we ignore the obvious warnings only to subsequently ask ourselves “why did that go wrong?”

A large number of companies fail to address problem issues early enough to avoid an oncoming crisis.

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

Instead of meeting these problems head on, often the preferred option is to engage in a totally pointless exercise such as a rebranding campaign or the launch of another product range destined to fail for the above reasons.

The operating style of many doomed companies is truly akin to Nero’s pastime of fiddling while Rome burns.

Macho Management Style – rather passé

In these difficult economic times we are constantly bombarded with negative news. As I undertake assignments for various companies there is no doubt that this is having a significant impact on morale and therefore impacting bottom line results.

It is important that Managers take on board the effect of these outside inputs on Staff and wherever possible reduce the "fear factor".

All too often I observe the management style to rely on pressurising people to attain often unrealistic targets. Far from improving performance it has the opposite effect.

It is time for a rethink - instead of relying on the stick approach, how about hitting with a carrot?

Holding the Folding

There is no shortage of ammunition for the gloom merchants at present. However, these current market conditions underscore the old adage that “cash is king”.

Just as was seen during the Great Depression of the 1930’s there are opportunities for those individuals and companies who find themselves in the enviable position of being positioned to operate in a cash-starved market.

There will be opportunities to acquire shares at very attractive levels whilst failing companies will be up for grabs at drastically reduced prices with the prospects for consolidation or spinning their assets for more cash.

It sounds like a pretty simple model, but then, so are many of the best ideas.

Don't get blind sided

From a company Manager’s perspective the recent market gyrations and latest pronouncements from politicians and economists alike have done little to calm nerves and now more than ever is the time for good housekeeping and firm controls. Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual ordering patterns, delays in payments etc.

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised companies. Make sure that when the dust eventually settles that your company emerges in a stronger position.

A question of trust

Late last week the Financial Services Authority issued a report of the activities in the years prior to the HBOS bailout and concluded that the Banks Corporate Management had been guilty of “very serious misconduct” but owing to the taxpayer stake means it faces no fine.

One important finding was that the Bank has misled its own auditors.

The integrity and reliability of any organisation’s reporting structure are vital to its long term survival. All too often risk controls are lax or can even be abandoned in the pursuit of profits.

As in the above case it can prove a false comfort to rely on the findings of the Auditors. Some of the financial instruments were so complicated that even their own architects could not fully understand the full implications. At the other end of the scale how worthwhile are the observations of a junior member of an audit team sent to a warehouse to give a competent value of stock being shown as an asset on the company’s book.

Even with the most rigorous reporting procedures any company is still heavily reliant on the calibre of the people operating the business and recording each and every transaction diligently.

A prudent exercise for any organisation is to regularly assess and test the systems in place for monitoring risk both transactional and counter party to judge that they are fit for purpose.

 

Now that’s an expensive hair cut

The latest turn of events in the seemingly never ending Greek debt debacle has resulted in a deal involving 172bn Euros worth of debt, with investors taking a total loss of up to 74%.

However as the international banking community digests another serious blow to its capital structure (e.g. ABN’s Greek losses estimated at US$ 1.16 billion) the UK banking community will not be immune. At the very least there will be a renewed focus on exposure and this will impact on their willingness to lend.

Even at this stage there is a feeling that the problem has been kicked down the road. It is a parallel situation to any company dealing with a recalcitrant debtor. Fearful of realising a loss further credit is extending in the forlorn hope that it’s not good money after bad. Unfortunately in many cases this is exactly what comes to pass.

Now more than ever businesses must demonstrate that they have full control over all aspects of their operations. Reporting procedures must be rigorously observed and any potential problem areas or customers brought quickly into line. As it becomes harder to borrow, positive cash-flow is critical.

What if your sat nav malfunctions?

One of the most valuable assets available to any organisation is local knowledge.

How many times has a venture ended badly owing to a basic failure to understand and deal with local market conditions?

The UK is a mature and sophisticated market and though offering different challenges to operating in a 3rd World destination there are still obstacles in trying to establish a presence.

Operating overheads present a crucial challenge and this is where we can assist you to achieve a cost-effective solution to marketing your products in the UK.

Take a look at our website www.glbconsulting.co.uk

Or check out our video link http://youtu.be/ruUtQnlJwVM

A Spectator always sees more of the game

 

During my various assignments one observation holds true – whilst there are businesses that (for a variety of reasons) destined to fail, there are many that would thrive based on receiving fresh input.

Particularly for those running an SME the personal level of involvement and commitment often means that it is very hard to change direction or take appropriate remedial action.

This is where an “outsider” can be of assistance – an objective appraisal can in many instances mean the difference between merely drifting as opposed to decisively moving forward.

Time Wasters – certainly a growth sector

The life of a Consultant is certainly not without its frustrations but undoubtedly the most irksome is the prevalence of the “time waster”.

Picture the scenario - contact is made by a company who wishes to engage the services of a Consultant to address the problems within their organisation. The Consultant spends time studying the brief and formulating a strategy for tackling these problem issues.

At the end of this initial process (often involving a series of meetings) it appears that it’s all systems go - then the Client goes cold - the time waster has reared his head again.

It is an all too familiar story - the troubled company appreciates it has problem areas but when faced with an objective assessment it is all too easy to duck the issue and try to muddle through.

The downside for the troubled company is this inertia will in most cases signal the slide into administration and or liquidation.

If you need an assessment of your business and (and I take it as a given that you are serious!) then why not check out my profile at
http://www.linkedin.com/in/gordonblackburn or contact me at gordon.blackburn1@btinternet.com

Banks – horrible sense of déjà vu

The Global stock markets continue their gyrations and once again it is the Banks under the spotlight.

Many of us find it incomprehensible that despite all the evidence to the contrary the Banks still seem to behave with a staggering disregard towards their
Shareholders and their Customers alike.

The level of their incompetence is only matched by the level of their arrogance.

Whilst the would be Masters of the Universe dream up more and more exotic financial instruments destined to lose more money their counter parts at retail level have turned Branches into a cross between a Disneyland and a Fast Food Outlet complete with piped muzak and garish Staff uniforms.

Who on earth has dreamt up this theme park approach to Banking? We don’t need to become friends with the Bank’s representative extolling us to “have a nice day”we just want a good professional service.

As we are witnessing yet again, the Corporate Bankers are even more incompetent, it’s just that there rewards are more lavish. Is it any wonder we find ourselves
once again staring into the abyss when the calibre of these Bankers is so poor.
Bear in mind the European Banks now have an estimated exposure of £258 billion
arising from the Debt Crisis.

Would you really feel confident sending them out to get you a sandwich?

Far from letting them have access to more money to fritter away we would be better off giving them a payment to go now before they wreak any more damage.

Navigating treacherous currents

A combination of recent market volatility, the continuing spectre of failure in
the Eurozone coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Constant monitoring of counter party risk is the order of the day combined with
disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no
guide as to future performance. Look out for tell tale signs such as unusual
ordering patterns, delays in payments etc. Very few businesses fail overnight
and there are usually enough warning signals which should enable a supplier to
reduce its risk.

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised
companies. Make sure that when the dust eventually settles that your company emerges in a stronger position

Time to bite the bullet

Every business transaction contains an element of risk, yet at the same time how
satisfactory are the mechanics for managing risk?

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions from large corporations to smaller SME’s.

In the never ending quest for larger profits many of the disciplined measures of
business were abandoned.

An analysis of recent business failures all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings.

There has never been a more pressing need to examine all areas of exposure.
A thorough analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

It is far better to take remedial action such as a write down whilst you are in control of your own destiny rather than have a 3rd Party appointed to do it for you.

Keeping the Customer onside

External factors over which little control can be exerted continue to buffet all
business sectors. However, every organisation does have a potentially winning
weapon in their armoury namely the opportunity to offer excellent customer
service.

In these difficult times everyone expects ultimate value for their cash be it the
corporate customer or the man in the street.

It is a paradox that as trading conditions become tougher and business harder to win the level of service offered by many Suppliers is falling very short of
acceptable standards.

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules
Customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet.

Customer service is not a difficult act to pull off – in reality all that is required is
to give the Customer the feeling that their business is important and they are
valued, not just “one of a number” or even worse a nuisance.

Those businesses that master the art of Customer service will emerge from this
current difficult period all the stronger.

Red Flag Warnings

Very few companies implode like a supernova. The distress signals are visible for some time before the flame out.

Any analysis of a company’s published accounts or even monthly management accounts are by definition “out of date”.

It is vitally important that all counter parties are monitored closely and “real time”. In the case of customers look out for unusual ordering patterns, repeated delays
in payments – these are early indicators of more serious problems ahead.

For any organisation facing mounting problems it is obvious that the solutions will of necessity be painful. However, radical and decisive surgery is often the only
way to ensure a patient’s survival.

Many companies adopt the Mr Micawber attitude that “something will turn up”. In the overwhelming majority of such cases the only people likely to turn up are the
administrators/liquidators. Be it merely inertia or fear of addressing the
issue the outcome will remain the same.