Ignore the warning signs and suffer the consequences

UK debt collection industry say overall value of unpaid debt held by collection firms (regulated ones) was over £58bn in 2011 (source: CSA)

The hackneyed response from recalcitrant Debtors used to be that “the cheque is in the post”. This generally bought some time as generally Suppliers met this response with a weary resignation.

Times have moved on and the latest mantra is “its set up for next week’s payment run”.

Basically the name of the game remains the same, buy some time - achieve a payment extension thereby effectively squeezing the Supplier’s margin.

Obviously it is a difficult balancing act between keeping the customer happy and managing your own company’s cash-flow.

However, we are all operating in difficult times and it is vital to keep full control of receivables.
Delays in payment will impact on the bottom line; however the worst scenario is that neglecting to strictly monitor a failing company could result in a total write off

Seemed lke a good idea at the time

The current economic data point to the fact that the coming months are going to present difficult challenges for all. As domestic budgets are ever more squeezed this will impact on businesses across the board.

This is an appropriate time to conduct a root and branch analysis of your business. Undoubtedly there are areas which would benefit from some radical adjustments/ change of direction. The consequence is not acting now could have very negative effects in the next few months.

Now is the opportunity to prepare for difficult times rather than adopting an ostrich "head in the sand" attitude .

When trying to explain a disastrous strategy to your Shareholders or Bankers it will be of little comfort to trot out the tired old defence “it seemed like a good idea at the time”.

Structured products – looks like the Banks never learnt their lesson

 

The staple of the Hollywood B movie was the Mad Scientist working away in his laboratory desperately trying to engineer a monster or come up with a powerful formula which would lead to world domination. Inevitably all these grandiose plans ended in failure and the world carried on as before.

Fast forward to today’s world and the threat comes from a different source the Mad Banker. Working away not in laboratories but behind banks of computer screens these would be Masters of the Universe still try to control the world through their own form of financial engineering.

By developing trading instruments and programmes of ever increasing complexity they have created monsters which just like Dr Frankenstein they could not control.

In the UK with more than £1.3 billion poured into complex investments during the first 2 months of 2012 the ingredients for another toxic cocktail are being put into place.

Low cost entry into the UK market

The UK offers a very attractive market for companies wishing to export their products. Counter party risk is identifiable and can be successfully managed.

However one barrier may be the perception of high operating costs.

There is no doubt that to commission and run a UK operation can prove a costly commitment. The lists of outgoings such as rent, communications, staffing costs are daunting, particularly in a start up situation where income streams are lagging far behind these costs.

This is where we can assist you, as an established independent company, we have experience of representing overseas organisations in marketing product into the UK.

In addition to opening up new markets for your products and services we can also police the all important areas of logistics and payment of your invoices.

An introduction to our activities can be seen on our web site www.glbconsulting.co.uk or alternatively why not contact me at gordon.blackburn1@btinternet.com to arrange a meeting to discuss how we assist you in entering the UK market.

Here they come again the usual suspects - fear and greed

 

Currently with all the talk of gloom and doom in the financial markets, fear is the overriding factor with a sense of panic gripping many operators.

Politicians seem to be hell bent on outdoing each other as to who can send out the direst warnings.

Now is the time to remain focussed and consider the implications for your business.

Just as was evidenced during the credit crunch crisis in the summer of 2008 there is a question mark over the manner in which the Banks will respond to the current inputs.

The problem for the Banks is that because of the legacies of their previous mistakes they are effectively stifling their customers businesses as they look to batten down the hatches and strengthen their own balance sheets.

It will become increasingly difficult to gain support from the Banks in the coming months therefore it must be the absolute priority to keep a strict rein on your finances – make sure that your Debtors Book is strictly controlled and ensure that Stock turn and inventory levels are well policed.

With their houses far from in order, the Banks will undoubtedly become increasingly conservative in their approach to lending, so the order of the day is work within your current limits and maximise your profits.

"Knowing your Customer" means understanding their business

 

In keeping with every financial crisis, the accompanying media reports are highlighted by scenes of earnest young men and women staring intently at their computer monitors as the latest wave of red flood across their screens. It is familiar shorthand for financial Armageddon.

There is no doubting that rapid advances in technology have transformed the way we do business. However whilst we watch the scenes unfold in this virtual world we should never forget that essentially commerce is about people trading together.

Whilst Computer “stop loss” mechanisms are the order of the day for “paper trading” the reality of the real world is that goods need to be moved from point of production to point of consumption and obviously this cannot be achieved via a computer terminal.

There is an old adage “know your customer,” this dictate has never been more important than in these uncertain and dangerous times. One of the biggest problems associated with the rise of e-commerce has been the accompanying lack of personal contact between a company and its customers.

Obviously this is not an issue for an online retailers selling products over the net and being paid via a Debit Card or Pay Pal etc.

However, there is an increasing tendency for B2B sales to be concluded by email or even SMS. The personal element has been lost and so has the identity and customer relationship. The surest way to avoid problems is by knowing your customer and understanding their business. This relationship and mutual understanding is impossible to build and maintain thru a key pad and email ordering system.

The person on the spot is baffled, whereas the onlooker sees clearly

 

Based upon my experience across a variety of sectors and businesses one observation holds true – whilst some companies are doomed to fail there are many whose survival and future profitability could be secured from a fresh input.

When you are personally involved it is not always easy to change direction or take appropriate remedial action.

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

Nurturing the company’s assets

Working with companies over the past months I have noticed that there is an increasing sense of demoralisation amongst many sectors of the work force.

The causes for this are readily identifiable, many people are struggling with their own domestic finances whilst at the same time the need for increased levels of performance and efficiencies at work have rarely been as intense.
 

It is the responsibility of the Management to ensure that during these times Staff members are encouraged to give of their best.


Too many Managers are remote from the day to day activities of their Staff and appear to have the attitude that the people who report to them are lucky to have a job.


This mentality is counterproductive. Staff need motivating and incentives do not necessarily have to come solely in the form of financial rewards.
 

Some of the best run and therefore by definition most successful commercial entities are those where the workforce is engaged and feels part and parcel of the organisation rather than merely there to make up the numbers.

Discretion the better part of valour

 All businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.

However, there are times when subsequent events show that on occasion the best business decision was to leave it to your competitors.

When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.

The upside of such fiscal discipline carries its own rewards. Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.

Sometimes it pays to get personal

Business practises have changed markedly in recent years.

Although many operations are completed electronically in this virtual world we should never forget that essentially commerce is about people trading together.

The reality of the real world is that goods need to be moved from point of production to point of consumption and obviously the diverse elements which make up this chain cannot be achieved solely via a computer terminal.

It makes sound economic sense to foster and maintain good customer relationships as it has been determined that it costs up to five times as much to win a new customer as it does to retain one.

There is an old adage “know your customer,” this dictate has never been more important than in these uncertain and challenging times.

Early warning indicators

Very often the best indicators are the least sophisticated. The UK economy remains in a very fragile state – the clearest evidence of this can be seen as you walk down any High Street.

The number of retailers entering administration in England and Wales in the first quarter of this year was up 15% on a year earlier.

69 firms failed during the three-month period, compared with 60 a year earlier.

The number of job losses that came as a result of these administrations was almost 10,000 out of the 22,000 employed by those companies

The rising number and popularity of charity shops tell underscore that many families are struggling. Consumers struggle with debt and job insecurity.

As the knock on effect percolate back down the chain many businesses will suffer. External factors by definition are difficult to handle but at the same time in-house disciplines can at least provide some insulation.

Cash-flow will remain difficult to manage so as always strict governance of Debtor and inventory control will provide some measure of comfort

The Chinese Dragon catches its breath

China's trade data for March has unveiled a mixed picture of growth in the world's second-largest economy.

Exports grew by a more-than-expected 8.9% during the month from a year earlier, indicating that global demand may be picking up.

However, imports grew by 5.3%, down from a 39.6% jump last month, raising fears about slowing domestic demand.

European markets are crucially important to China and these latest figures have allayed fears that with European economies in a fragile state Export growth would suffer.

The uncertainty in the global economy in recent years has resulted in a shift in China's growth policies.

Faced with a slowing global demand for its exports, Beijing has been trying to boost its domestic consumption in a bid to sustain its high pace of growth.

Authorities have been easing monetary policy in an attempt to spur demand.

The Chinese central bank has already reduced its reserve ratio requirement, the amount of money that banks need to hold in reserve, twice in the past few months, in a bid to boost lending in the country.

Analysts said the weak numbers may prompt the bank to take further measures.

Hidden dangers – be on your guard

 

The Chairman of the US Fed Reserve Ben Bernanke has stated that "even as we make progress on known vulnerabilities, we must be mindful that our financial system is constantly evolving and that unanticipated risks will develop over time,"

In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

For example I have worked in trading environments where totally unrealistic profit target have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.

Some of the most spectacular financial flame outs have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such times it would be well to take note of the old adage that is something looks to be too good it usually is!

If your company is bucking the trend in these difficult times it may well be that you are implementing a winning formula.

However history tells us that it is often a prudent course of action to look under a few stones – just in case.

A distinct lack of commercial realism

I was approached by a “start up” company operating in the field of renewable energy.

 The initial telephone conversation sounded promising so I arranged to have a preliminary meeting. I met the “management” at their offices in a prestigious block in The City – so far so good. 

We then got down to discussions and it all went rapidly downhill – these people had a vision of being the London HQ of a large energy trading company. The only problem was they hadn’t thought through exactly what they were trying to do, far from seeking an assessment /appraisal of their business they were in fact looking for someone to turn up and present them with a business plan for a niche role in an industry in which they had no previous experience, product or usp. 

As a Consultant I am quite used to explaining the harsh realities of the business world to companies that are already operating and finding it tough. However this was quite a different case – these people though that by putting a name board on an office building in The City this would fast track them to a listing on the FTSE 100.

 

Needless to say apart from providing me with an insight into a commercial Never Never Land this particular assignment was not one to fly.

However I am still on board for serious projects!

Customer service – achieving the right balance

The old adage the Customer is always right has come in for a fair amount of scrutiny recently and there are many times when plainly the Customer is in the wrong.

Notwithstanding it is of paramount importance to the sustained growth of any business that the Customer is kept onside.

The key requirement that any Customer wants is to feel that his/her business is valued and appreciated.

In business securing the deal is only the start of the process and the repeat order very often stands or falls with the after sales service (or lack thereof).

Simple but effective measures such as ensuring all contracts are performed efficiently and within due time and that any complaints are handled promptly and with courtesy will go a long way to building and maintaining long lasting relationships.

We have all encountered the difficult Customer with whom it would be easier not to deal. However, in these difficult times there are many who would willingly take this “problem” and revenue off of your hands.

Avoiding ostrich management

How often do we see that by ignoring obvious problems the Management and Shareholders of troubled organisations subsequently end up asking “why did that go wrong?”

It is simple, 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 grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding exercise or the launch of another product range destined to fail for the above reasons.

Problems ignored rarely go away. Timely intervention can avoid the need to conduct a messy post mortem.

Diversification – sometimes it turns round and bites you

Without doubt one of the most difficult challenges a business faces is diversification. Very often a company is faced with the dilemma of diminishing revenue returns and a tired business model which is either irrelevant or obsolete.

Diversification is seen as the solution to this dilemma. However, the mechanism for achieving this objective can be particularly difficult.
The first step is examining why the current business model is not working. This requires an honest appraisal from the Management in respect of their performance.

Then the areas of diversification have to be closely considered, very often people plunge into businesses in which they have little knowledge or experience and the results pretty quickly show up these deficiencies.

Thirdly one should always respect geography it may be very tempting to consider that there are opportunities just waiting to be picked up but to underestimate the advantage of local knowledge and conditions can again prove costly.

In essence diversification can provide the answer to a company’s need for increased revenue but without a clearly defined strategy it can equally provide another drain on an already embattled balance sheet

Who’s getting a free ride?

In this current climate more and more Customers are actively delaying payment to Suppliers. Slow payers monopolise profits and starve creditors of much needed cash. Accordingly policing of receivables is 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 current Greek situation – 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?

Ask yourself “who is getting a free ride?”

It may well be that you conclude that an overall appraisal of your business is overdue - this is where I can help.

Why not get in touch with me at gordon.blackburn1@btinternet.com and I’ll help you get back in control.