The high cost of complacency

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.

The key is to make sure that when the dust eventually settles that your company emerges in a stronger position.

Risk/Reward – 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^rdParty appointed to do it for you .

That’s the way to do it

 The latest assessment of the UK economy by the IMF makes for uncomfortable reading. The UK is back in recession after the economy shrank by 0.4% in the final quarter of 2011 and by 0.3% in the first three months of this year.

The IMF lowered its growth forecasts for the UK to 0.2% in 2012 and 1.4% in 2013. In the spring, it had forecast growth of 0.8% this year and 2% next year.

The IMF said that the UK faced "significant challenges" from a stalling recovery, high unemployment and threats from the Eurozone.

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”.

Keeping close to your Customer

Over recent years rapid advances in technology have transformed the way we do business. Our everyday business tools would have been regarded as flights of fancy not so long ago.

With the unstoppable rise of e-commerce come challenges. Perhaps the biggest danger is the 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 not possible to maintain thru a key pad and email ordering system.

Symbiotic relationships key to survival

All too often the focus on the current economic background is negative. However one of the benefits emerging from the current business climate is the value that can be placed on a mutually beneficial Customer/ Supplier relationship.

As increasing numbers of business operate on a just in time inventory basis it is vital that a good understanding exists between supplier and Consumer.

In as much as a Supplier will be prepared to go the extra mile to ensure that his Buyer receives his goods on time and in good order so it behoves a Buyer to ensure that he pays as required and is not abusing the goodwill of his Supplier by “pinching” some extra period of credit.

If both parties work together in a professional and commercial manner then it will strengthen the relationship and both will emerge from the current difficult situation with a renewed confidence in each other and a better based business for the long term.

The problems in Spain continue to mount

Spain has already asked for and been granted a bailout for its banks. The worry now is that the financial demands of some of the country's 17 autonomous regions will mean the country will have to seek a full bailout, in the same way that Greece, the Republic of Ireland and Portugal did.

Many of Spain's regions have high borrowing needs, and speculation is growing that a number of them will follow Valencia and ask formally money from Madrid at a time when the central government itself is having trouble borrowing money.

The spectre of Spain’s deepening crisis continues to rattle markets and against this background companies are finding it increasingly difficult to source funding from institutions. Now more than ever is a time to focus on cash-flow and ensure that all receivables are dealt with in a timely fashion. Sloppy credit control practices could prove very costly.

Diversification can be damaging

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 own 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.

Local knowledge - a valuable resource

One of the most valuable commodities 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 than for example 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

Houston we have a problem

 

When the crew of Apollo 13 contacted Mission Control in April 1970 there was no ambiguity. Following an explosion the crew faced a potential catastrophic situation which they quickly identified and a successful course of action was implemented.

Contrast this to the situation at J.P. Morgan when in May they announced “markets we have a problem” at that time they estimated losses at approximately $2bn.

Subsequently JPMorgan Chase has raised its estimate of the value of its recent losses from trading in complex financial derivatives to $4.4bn (£2.8bn).

The bank also said it had found evidence that some traders may have been trying to hide their losses.

The bank said it would restate its results from the previous three months because it had made $459m less than it thought.

It seems almost daily we are receiving reports of financial mismanagement and sheer incompetence on a level that beggars belief.

Not only would the internal controls of these institutions appear seriously deficient but there is a question mark concerning the obvious lack of professionalism on behalf of the independent auditors.

It is fast becoming a question of whose accounts can you trust?

The Dragon taking a breather

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.

China's economy has grown at its slowest pace in three years as investment slowed and demand fell in key markets such as the US and Europe.

Gross domestic product rose by 7.6% in the second quarter, compared with the same period a year ago. That is down from 8.1% in the previous three months.

In March, Beijing cut its growth target for the whole of 2012 to 7.5%.

China accounts for about a fifth of the world's total economic output and any slowdown may hamper a global recovery.

At the same time, many of Asia's biggest and emerging economies are becoming increasingly reliant on China as a trading partner.

If China's growth does not pick up in the second half of the year then that will translate into a very difficult second half for a lot of the manufacturers in this region.

European markets are crucially important to China but with European economies in a fragile state the implication for Export growth is obvious and the potential for the euro debt crisis to spread would result in a further decline in export growth in the months ahead.

Keep them happy – keep them loyal

 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 with the intensely irritating muzak accompaniment, 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.

Choose your target carefully

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.

Consumer confidence – weighed in the balance

One of the tests of the English legal system is “what would the man on the Clapham omnibus think?”- Basically this is the reaction to any problem or situation that could be expected from a reasonably educated and intelligent but non-specialist person.

In the current economic climate many companies would do well to ask “what does the man standing in the queue at the Clapham Supermarket checkout think?”

The problem is (as we see all too regularly) many people running businesses (or for that matter senior politicians) are too removed from the realities of life to effectively understand the economic difficulties faced by the ordinary consumer.

It is a very easy exercise, a few minutes spent in the supermarket or on a garage forecourt will give a true insight into the problems and frustrations currently felt by the ordinary consumer.

Until such times as the man in the street starts to regain some confidence there is little chance of economic recovery having a sustained momentum.

A question of trust

As the various pressures increase on businesses the integrity of financial reporting has never been more crucial.

With companies and individuals desperate to achieve profit targets the potential for abuse may prove to be too much of a temptation.

It is important that systems are in place to prevent misreporting and in worse case scenarios fraud and these systems should be reviewed and rigorously checked.

It is hardly surprising that “independent” auditors who were called into Banks in Spain to verify the true value of the property portfolio now report that the Banks need an injection of that they will need up to 62bn Euros. Until a short time ago the market was only too willing to accept the Bank’s own value for its balance sheet “assets”.

Recent reports in respect of the LIBOR fixing scandal illustrate how vulnerable institutions are if their personnel choose or are allowed to camouflage the extent of their exposure to unanticipated market movements.

Fraud is not confined to any one business sector; yesterday the U.S. futures industry took its latest blow as Iowa-based broker PFGBest collapsed after regulators accused it of misappropriating customer funds for more than two years, dealing a new blow to trader trust just months after MF Global's demise.

The Commodity Futures Trading Commission (CFTC), which along with industry regulators had given a clean bill of health to dozens of brokers following spot checks in January, alleged that the firm's regulated Peregrine Financial Group (PFG) unit and its owner had defrauded customers and lied to regulators in order to hide a shortfall that now exceeds $200 million.

Despite the increased presence of computer modelling to monitor risk there is always the “human element” which has to be considered.

Nobody has devised a fail-safe system which affords 100% comfort but in many instances a closer objective scrutiny would have given sufficient warning to have averted a train wreck.

Juggling Jelly

Managing a business in today’s environment is a complex affair – it has been likened to spinning plates whilst juggling jelly.

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 many a crisis 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 question that needs to be answered initially is – for how long can I keep all those plates spinning?

Effective Management in troubled times

Working with companies over the past months there is a noticeable 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.

Liquidity crisis – will you win through?

As the Banks continue to labour under the weight of their previous errors the knock on effects are percolating down through the economy.

With both new and additional funding hard to access – now is the time to take a long hard look at your Company’s financial situation.

Any approach to your Bankers could be very uncomfortable in the current climate so it is necessary to demonstrate you have full control of your exposure. Make sure that the Debtors book makes for healthy reading and that inventory control and stock turn are being monitored very closely.

Ironically it is the activities of Banks themselves who have once again precipitated the ongoing crisis but that will not prevent them from playing hard ball with anyone trying to seek support for additional funding in the current climate.

Trying it on - or Red Flag warning?

Not so long ago the standard response from recalcitrant Debtors was “the cheque is in the post”. It traditionally 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 computer payment run”.

Basically the name of the game is the same, namely to achieve a payment extension 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.

Now more than ever it is vital to keep full control of Debtors.

Whilst delays in payment can damage bottom line, the worst scenario is that neglecting to monitor a failing company could result in a total write off.

If it wasn't so serious we could all laugh

The Governor of the Bank of England recently issued another doom laden forecast warning of the "extraordinarily serious and threatening" economic situation.

He joins a growing band of Doomsayers made up of high profile members of the international Banking world and senior politicians who seem oblivious to the fact that the problems we now face were created on “their watch”.

It is the ultimate irony that politicians with the so called “light touch” and institutions such as the Bank of England/ US Fed were all too willing not to look too closely into the ways that the markets and sovereign economies were being structured for fear of rocking the boat. (The current LIBOR fixing debacle being a case in point).

There is a certain black humour that these very architects of disaster now turn round and pontificate about the dangers that the world faces.

As the crisis in the Euro zone unfolds it is also worth noting the number of high profile cheer leaders for the Euro who are now conspicuous by their silence on the matter.

The reality is the man in the street is told to prepare for further austerity measures whilst businesses find themselves desperate for funding as Banks are reluctant lenders as they look to repair their damaged balance sheets.

Plus ça change.

Gilding the lily

There is no doubt that against the current economic background that some companies are camouflaging their poor performance with some suspect off-balance sheet shenanigans other dubious activities. 

The current storm engulfing the Banking community over the “fixing” of the LIBOR rate is not an isolated event. However it highlights how vital it is that Senior Management set clear defined operational and reporting procedures.

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.

In trading environments it is not uncommon that totally unrealistic profit targets 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.

Shark infested waters – don’t fall overboard

As the economic downturn continues to bite all businesses and organisations must remain alert to the potential for fraud.

Entrepreneurial owners of SME’s are a prime target for fraud as overseeing finances doesn’t always come naturally to them. If a founder is focusing mainly on the product or service being sold, and only minimally on administration, it leaves a business vulnerable to fraud.

 

It is vital to have systems in place to monitor all the company’s finances in a clear and concise format. After all it is never comfortable experience to find that someone is holding your wallet.

However all businesses be they independent or large corporations are vulnerable.

As the story of fraudulent LIBOR rate fixing at the Banks unfolds so the call for those responsible to face criminal charges gathers momentum.

Last week a senior potato buyer at J.Sainsbury Plc was found guilty of orchestrating a fraud whereby a four-year police investigation revealed that £4.9m was paid out of a fund created by the overcharging of Sainsbury's. The total amount the supermarket says it was overcharged by was £8.7m.

It is an undeniable fact that there will always be people trying a variety of ways to “scam” your organisation; it is a problem that will not go away so vigilance is the order of the day.

Where's the money gone?

 

Particularly in these difficult times, it is staggering that so many companies be they large or small fail to keep a control of their inventories.

Whilst Management consistently push for increased sales performance, the question of housekeeping is often put on the back burner or it would appear totally neglected.

This begs the question: how comfortable are you with your Stock and Debtors controls?

It might be timely to conduct a pre-emptive review of your operating systems now rather than wait for the post mortem results.