Cranking up the profits

How do we boost the bottom line? – without doubt the most hackneyed question in business.

There are 2 obvious solutions, (a) Cut operating costs and (b) Boost Revenue. If you’re the FD you’ll probably aim for the double.

The Sales Director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

As such for most companies it is about getting back to the basics – ensuring orders are processed efficiently and in a timely fashion.

Following up on customer satisfaction, in short providing what in old fashioned terms was called “service”.

 

Tapping the barometer

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 rising number and popularity of charity shops tell underscore that many families are struggling whilst at the same time the spectre of Administration looms large.

The UK Chancellor may have to extend the squeeze on public spending until 2018 if the recent deterioration in growth prospects and tax receipts turns out to be permanent, a think tank has said.

The Institute for Fiscal Studies said George Osborne may have to find another £11bn from tax rises or spending cuts if the economy does not pick up.

With many people continuing to struggle with debt and job insecurity it is hard to imagine a return to the heady days of consumer excess.

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 be very difficult to manage over the coming months so as always strict governance of Debtor and inventory control will provide some measure of comfort.

 

Spot the fault line

The Financial Services Authority (FSA) has fined UBS £29.7m ($47.6m) for failings that led to trader Kweku Adoboli losing £1.4bn.

The regulator fined UBS for "system and control failings" that allowed him to trade in London well beyond authorised limits.

The FSA, which conducted the investigation into failings at the bank with its Swiss counterpart, Finma, said there were serious weaknesses at the Swiss bank.

It said in a statement: "UBS failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, and failed to conduct its business from the London Branch with due skill, care and diligence."

In the financial markets exotic trading products and programmes were created which like the Frankenstein monster quickly became uncontrollable. Risks were taken on an unprecedented scale and those supposedly monitoring risk were “asleep at the wheel”.

Recklessness was encouraged and became the default position. There were no checks and balances – it became for the participants in the so-called casino bankers a safe bet.

What’s the worst that could happen following a spectacular flame out?Maybe you lost your job and had to move to another bank or institution. Get it “right” and the rewards were sky high.

Whenever there is a bonus culture unless the supervisory systems are rigorous there will be potential for abuse.

Whether through greed or stupidity there will always be people willing to take potentially catastrophic chances.

What is required is that the senior management spend less time forecasting their own bonus and more time scrutinising the bottom line and understanding how results are achieved. Until this balance is in place disasters in the financial system will continue to occur.

KYC - know your customer

In the US this basically refers to a due diligence process undertaken by Banks and financial institutions to combat fraud, identity theft and general scams.

It is however a mantra that most organisations would do well to adopt.

Rapid advances in technology continue to transform the way we do business. Everyday business tools would have been regarded as flights of fancy not so long ago. With the unstoppable rise of e-commerce come challenges.

One of the biggest dangers is the lack of personal contact between a company and its customers. Obviously this is not an issue for online retaillers selling product over the net and being paid via a Debit card or Pay Pal etc.

However the is an increasing trend for B2B ales to be concluded by email and even SMS. With the loss of the personal contact the identity and customer relationship suffers.

The surest way to avoid problems is by knowing your customer and understanding their business.

This relationship and mutual understanding cannot be achieved via a key pad and electronic ordering system.

 

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

 

‘tis the season to be – focussed

 

In recent times there has been the tendency for the Christmas holiday season to stretch out over a number of weeks and therefore with just over a month to go to Christmas it would seem an appropriate time to consider the implications for business.

Without doubt of biggest concern to SME’s will be the impact on cash-flow. Many companies are operating very close to the edge and any delays in payment could have serious consequences.

In some instances invoices which fall due for payment after the 17^th December could well not be settled until the 3^rd January – giving an at worse scenario of 3 weeks delayed payment.

It would therefore seem prudent to look at your last half December receivables and make a realistic forecast of just how much cash will “come in”.

Similarly with “just in time” inventory it would be sensible to ensure that sufficient stock will be on hand for the early days of January when there will be inevitable disruptions to the supply chain.

Trying to get things done in the UK during the latter half of December will undoubtedly prove to be a challenging task so it would be best to ensure you take appropriate action now and are positioned accordingly.

A true and fair representation?

By: PETER SVENSSON (AP)

NEW YORKCopyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

40.7143-74.006

Hewlett-Packard Co. said that a British company it bought for $9.7 billion last year lied about its finances, resulting in a massive write-down of the value of the business.

CEO Meg Whitman avoided calling it a fraud, but said Tuesday that there were "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation PLC."

HP is taking an $8.8 billion charge in its latest quarter largely to align the accounting value of Autonomy with its real value.

Whitman said Autonomy's financial illusion started to unravel after founder and CEO Mike Lynch left on May 23. A senior Autonomy executive then volunteered information about the accounting shenanigans, prompting an internal investigation, she said. 

The case has been referred to the U.S. Securities and Exchange Commission and the UK's Serious Fraud Office, she said. The company will also try to recoup some of the cash it paid for Autonomy through lawsuits. 

On a conference call with Whitman following the earnings report, analyst Ben Reitzes of Barclays Capital asked who will be held responsible internally for the disastrous acquisition. 

Whitman answered that the two executives that should have been held responsible — Apotheker and strategy chief Shane Robinson — are gone. But the deal was also approved, essentially, by the current board.

Quote most of the board was here and voted for this deal, and we feel terribly about that," Whitman said. "What I will say is that the board relied on audited financials. Audited by Deloitte — not 'Brand X' accounting firm, but Deloitte. During our very extensive due diligence process, we hired KPMG to audit Deloitte. And neither of them saw what we now see after someone came forward to point us in the right direction unquote.

The magnitude of this problem is huge but in itself it is not an unfamiliar scenario. 

Essentially there are many instances of conflict of interest such as taking on consultancy work for Clients and becoming too cosy with management teams. 

It is all too easy for companies to bully the young staffers sent in to do the grunt work.

For example what chance has a newly appointed auditor walking around a factory warehouse to adequate value stock? In reality they have to rely on the company for “valuations” and this can result in a totally inaccurate picture being presented. 

The validity of a company’s accounts reflects the integrity of the company which is being audited. 

As was demonstrated with the banking crisis in Spain an unrealistic valuation of the property portfolio either through deviousness or sheer incompetence ll ultimately had disastrous consequences.

Banking management – asleep at the wheel

A City trader who lost £1.4bn ($2.2bn) of Swiss bank UBS's money has been jailed for seven years after being found guilty of two counts of fraud.

According to a spokesperson for the City of London police Quote this was the UK's biggest fraud, committed by one of the most sophisticated fraudsters the City of London Police has ever come across.

To all those around him, Kweku Adoboli appeared to be a man on the make whose career prospects and future earnings were taking off. He worked hard, looked the part and seemingly had an answer for everything.

But behind this facade lay a trader who was running completely out of control and exposing UBS to huge financial risks on a daily basis.

Rules put in place to protect the bank's position and the integrity of the markets were being bypassed and broken by a young man who wanted it all and was not willing to wait.

When Adoboli's pyramid of fictitious trades exceeded trading limits and non-existent hedging came crashing down, the repercussions were felt in financial centres around the world. Unquote

To those not familiar with the culture of “investment banking” the above will be seen as just desserts for yet another rogue trader.

There is however a much more salutatory lesson to be drawn from this latest banking debacle. In his defence Adoboli said that traders were encouraged to take risks and carry on until they received a “slap on the wrist”. Anyone who has worked in a trading environment would recognise this as a not unusual scenario.

There is no doubt that Adoboli committed fraud but at the same time should not his superiors also have faced some close scrutiny for their part in the fiasco?

At the very least they are guilty of dereliction of duty/negligence.

However as we have seen in the recent past those who were in charge of the Banks were too pre-occupied with their own rewards to spare time in managing the interests of their shareholders.

Euro woes continuing

The Eurozone has returned to recession as the region's debt crisis continues to hurt demand.

The economy of the 17-nation bloc contracted by 0.1% between July and September, after shrinking 0.2% in the previous three months,.

The Eurozone was last in recession in 2009, when the economy contracted for five consecutive quarters.

The news follows on from millions of workers in Europe holding a day of action against austerity measures.

Protests in Spain, Italy and Portugal were marred by violence.

Countries such as Greece and the Republic of Ireland that have been bailed out by international lenders continue to see their economies shrink. Meanwhile larger economies such as Spain have imposed spending cuts in an attempt to avoid having to ask for a bailout.

The austerity measures in many countries - mostly in southern Europe - have combined tax rises with cuts in salaries, pensions, benefits and social services.

"We are now getting into a double dip recession which is entirely self-made," said Paul de Grauwe, a professor at the London School of Economics. "It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else.”

Apart from the social cost the spectre of unemployment represents a major threat to economic recovery within the EU together with all the global implications it brings.

The long and winding road

The Governor of the Bank of England has issued another doom laden forecast warning that with one in 3 UK companies losing money” the road to economic recovery will be long and winding”.


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.

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 more belt tightening whilst businesses find themselves desperate for funding as Banks are reluctant lenders as they look to repair their damaged balance sheets.

Plus ça change.

 

 

The value in leaving some deals for your competitors

  

In the coming weeks, much media focus will be given to the projected burst of retail sales in the pre Christmas/ post New Year period.

With tightening household budgets it should have come as no surprise to retailers that consumers will be hard to attract and some more innovative marketing in the last quarter of 2012 would have paid dividends. As it is Kamikaze discounting makes little commercial sense and the results of this policy is likely to be more casualties in the High Street in the coming weeks

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.

 

 

Recessions catch what the Auditors miss

Recent events have underscored 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.

For example I have worked in trading environments where 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. The clutch of looses reported by the Banks in proprietary trading illustrates that this culture still exists today.

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 a worthwhile exercise to look under a few stones – just in case.

 

 

Seemed like a good idea at the time

 

The current economic data point to the fact that the last weeks of 2012 are going to be a difficult time for all. As domestic budgets are ever more squeezed this will impact on businesses across the board.

The latest results from Supermarket chain Morrison, one of the UK's big four grocers, has reported another quarterly drop in sales, citing "fragile" consumer confidence.

The trading environment "has remained challenging", the supermarket said, and sales "were lower than anticipated".

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 the outcome of a failed 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”.

 

Where's the money gone?

It is a constant source of amazement to me that so many companies be they large or small fails 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.

The question of Stock is a thorny issue. There are obvious downsides in operating a “just in time policy” but at the same time excessive stock levels not only ties up valuable working capital but can become obsolete leading to substantial write downs. (There is also the danger of the “smoke and mirrors” approach to stock valuations which give false impressions as the company’s financial well being).

On the subject of receivables this is traditionally a time when the most inventive forms of delaying payments come to the fore. Even more so against the current backdrop it is the season to be vigilant.

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.

 

 

 

Consumer confidence – the litmus test

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 that 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 but 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 gaining momentum.

 

Multichannel marketing

The retail sector is facing particular challenges at present with the survival of many outlets resting upon the results of their Christmas trading.

Much talk in recent times has focussed on the demise of the traditional British High St. with 30 shops a day closing down. There is a tendency to feel that all would be well if instead of the plethora of Charity shops, Discount Retailers and Pay Day Loan outlets they were to be replaced by Butchers, Bakers & Candlestick Makers.

In reality there is no going back to this perceived “Golden Age”. The new buzz word in retailing is "multichannel", loosely defined as a strategy that involves selling through stores, websites, mobile phones, catalogues, social networking sites, et cetera. Basically it is an all encompassing process designed to maximise sales revenues.

Not all business models can embrace this system but there has rarely been a time when the old adage of “work smarter” has been more relevant. As more and more obstacles are thrown up to threaten operating margins everyone in any commercial organisation must ensure that they are operating at optimum efficiency.

Whilst many Retailers are pinning their hopes on “multi channelling”, they are not the only sector having to radically re-think strategy in these turbulent times.

The inability to adapt to the requirements of the changing market place will inevitably see many companies joining the long list of corporate failures in the months ahead.

 

And now for something completely different

It has been revealed that the SFO had failed to get approval from the Cabinet Office and Treasury Pension and severance payments of £412,000 made to the former chief executive of the Serious Fraud Office (SFO) and have been ruled as "irregular".

The National Audit Office said the payments to Phillippa Williamson were "made without proper authorisation".

As a result, the National Audit Office (NAO) said it was "qualifying" the SFO's annual accounts for 2011-12.

Small wonder that organisations such as the FSA and SFO have become objects of ridicule at a time when the need for the most robust policing of corporate behaviour has never been greater.

 

Watching the defectives (with apologies to Elvis Costello)

Governance of the Bank of England is "defective", according to the chairman of the Treasury Committee following the publication of three independent reviews into the Bank's performance.

The three separate reviews, commissioned in May this year, looked at the Bank's emergency assistance to HBOS and RBS banks in October 2008 at the height of the financial crisis; the Bank's ability to provide funding to the banking system as a whole; and its forecasting abilities.

The first, by Ian Plenderleith, a former member of the Bank's Monetary Policy Committee, suggested in the run-up to the financial crisis there was greater focus on systemic risks rather than on the potential failure of an individual financial institution.

The report also said the Bank was dependent on the City watchdog, the Financial Services Authority, for information on individual banks' cash flow, but that this data was not detailed enough. It added that Bank was only insured against the loss of 12% of the total amount of money lent to HBOS and RBS - £51.1bn was not covered.

The loans "constituted amongst the biggest risks to the Bank's balance sheet in its history", the report said.

The second review, by Bill Winters, a former JP Morgan banker and member of the Independent Commission on Banking, questioned the "robustness" of internal governance at the Bank.

While the report acknowledged that "less senior staff are often willing to challenge their superiors... there appears to be some tendency for them to filter recommendations in such a way as to maximise the likelihood that senior staff will find the recommendation palatable.

"While this makes it easier for the governor, as ultimate decision-maker, to reach conclusions, it risks reducing the range of views he sees and, as such, might lead to a less effective overall outcome."

The final report by at the Federal Reserve, questioned the forecasting abilities of the Bank, saying they have deteriorated since the onset of the financial crisis, and are not as accurate as those made by external forecasters.

On balance quite an indictment of the people who had their hands on the tiller as we approached the perfect storm.

 

Credit line drip feed

Bank lending to businesses will hit its lowest level this year since 2006, despite government efforts to stimulate lending, a report suggests.

The Ernst & Young Item Club forecasts that business lending will fall by 4.6% to £429bn in 2012 from last year, the fourth consecutive annual decline.

In what can be described as a Catch 22 situation the Banks say demand for loans is low, while many businesses argue banks are unwilling to lend.

Latest figures from the Insolvency Service show that 986 firms went into administration, receivership or a company voluntary arrangement in the third quarter of this year.

There are many businesses stagnating - being kept alive by the forbearance of banks, rather than being shut down as they would have been during previous recessions.

Research shows 146,000 businesses are in fact 'zombies', whereby at best they are able to pay the interest on their debts but not reduce the debt itself.

After every credit binge there is always an overreaction but unless there can be a freeing up of funds to business then it will continue as a drag factor on the economic recovery.