The overhead monster getting hungrier by the day

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.

 

No time for sentiment

There is a growing trend for companies to bully their suppliers over the question of payment terms. It is not unusual for Buyers who hitherto had paid on the basis of 30 days to now demand switching 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.

 

Innovation key to survival

The retail sector is particularly challenged at the moment as domestic spending is reined in.

 Facing continual squeezing of operating margin the quest is for innovative ways to drive sales.

The new buzz phrase in retailing is "multi-channel", 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.

Recent data from the Office of National Statistics for December indicate the amount spent online accounted for 10.1% of all retail spending, excluding fuel.

In the food sector, the proportion of online sales rose 27% on the year. That meant that online sales now make up a record 3.7% of all food sales.

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.

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

 

From Triple A to Triple Dip?

 

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 and burgeoning debt has been for 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 abandoned. An analysis of recent disasters from the subprime fiasco in the US through to the Greek Debt debacle all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings.

 

The UK has lost its Triple AAA status with most forecasters still failing to properly capture the negative impact of "deleveraging" - or households, businesses, banks and the government trying to cut their big debts – coupled with a serious risk of a further worsening in the Eurozone's mess.

 

Against this back drop it is questionable whether even the anaemic recovery expected by the Office for Budgetary Responsibility in 2013 will take place.

 

A forensic analysis of your company’s current Debtors Book at this time might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

 

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.

 

Juggling Jelly

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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. 

It is worth remembering that a spectator always sees more the game. 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?

 

Finding the philosopher’s stone.

When trying to improve the bottom line, there are 2 obvious strategies, (a) cut operating costs and (b) Increase revenue. If you’re the FD it’s the Holy Grail.

 

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”.

This is where a difficult balancing act comes into play, in cutting costs the net result is very often a reduced / demoralised workforce. If those involved in the support work aren’t performing then results inevitably suffer. It is a question of striking the correct balance.

When China wakes up, the world will shake

The above quotation which is attributed to Napoleon during his exile at St Helena is almost 200 years old. It was an extremely prescient view and certainly resonates today.

During the last decade we all saw the results of the dynamic Chinese export programme as goods poured into the US and EU markets.

There has been a marked step up in acquisition of assets following the recent economic problems particularly in the US.

However there is another factor emerging as China steps up its demand for raw materials particularly agri commodities.

The burgeoning Chinese middle class will continue to demand products which traditionally consumed in the Western world.

As dietary patterns change this will lead to upward price pressure in all sectors of the food industry.

This demand will only continue to grow and it will surely become a case in the Western world of “wake up and smell the Coffee – whilst you can”.

 

You can only win it if you’re in it

 

Some years ago whilst working for an international corporation I attended one of the bi-annual strategic reviews for senior Group executives. Each executive was required to give a presentation in respect of his/her business unit. One colleague addressed the audience with his one word objective namely “survival”.

 

At the time this was met with a fairly frosty response but current events show that it is probably a suitable watchword for the present time. As the machinations continue in the Euro zone and the commentaries become even more emotional with phrases such as “disintegration” and “meltdown” then to survive these times would seem to be a very laudable objective.

So many factors are coming into play over which individual companies can do little to protect their interests other than ensure that they react appropriately.

However the one certainty is that the global economies will survive and business will continue. In the coming months there will undoubtedly be casualties but by adopting a controlled and rational response to these challenges businesses can ride out these difficult times.

 

The true cost of cheap food

As the fall-out from the horse meat scandal continues it has brought into focus the whole background to so called “cheap food”.

Notwithstanding the fact that passing off of horse meat as beef is basically a criminal act of fraud, it highlights the vulnerability of a market where prices are squeezed to the absolute and in order to protect margins suspect practices and questionable ethics will inevitably come to the fore.

The CEO of the Iceland Frozen Food chain has cited the purchasing policies of local councils blaming them for driving down food quality with cheap food contracts for schools and hospitals.

Independent butchers (an endangered species in themselves) are making capital out of the current crisis by citing their credentials as reliable suppliers who have complete traceability of their product. However the collapse in the number of independent retailers in face of the competition from the all powerful supermarkets means that this is likely to be a last hurrah rather than a return to the golden age of the British High Street.

In the UK overall household spending has failed to increase over the last year. This suggests that higher inflation and slow wage growth are squeezing household incomes and that is being felt in the UK's shops.

The current economic reality will underpin the demand for cheap food but in satisfying this demand as we are now seeing there will be accompanying risks.

 

 

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 Greek bail out 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.

 

Customers - love 'em or lose 'em

 The old adage the Customer is always right has come in for a fair amount of criticism 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.

Food price inflation - no let up for the foreseeable future

The Bank of England has issued a warning that it is unlikely to achieve its 2% inflation target citing the rising costs of oil and food as contributing to upward pressure.

Livestock and milk related products are primed to rise further in accordance with the higher costs of grain based feedstuffs.

Food manufacturers are caught in a vice; the buying pattern for many has been “just in time” reflecting the need to keep inventories as low as possible.

However without the safeguard of a “buffer stock” they are now more than ever exposed to the harsh reality of having to “pay up” in order to secure the raw materials to keep their facilities in production.

At the same time Suppliers will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.

The era of cheap food has long passed and with consumers still having to closely watch their expenditure companies will now more than ever be required to ensure they are operating at optimum efficiency.

 

Trust –the defining business requisite

As economic conditions remain tough more than ever the question of trust is of paramount importance.

Operating margins are being squeezed and people are looking for ways to protect their bottom lines. As we are seeing with the latest furore over horse meat contamination in “Beef products” there will always be those who disregard regulations or flout the law in the belief that they will get away with it.

As the UK Environment Minister stated "People should have absolute confidence in what they are buying. The responsibility for that lies with the retailers, who need to be absolutely sure that what they're selling is what they think it is."

It boils down to the integrity of the supplier, no matter how many factory audits are conducted or how many QA questionnaires are completed it is essentially an issue of trust and reliability.

The same can be said of the Buyer, if goods are delivered on a credit basis this should mean that the Supplier has every right to expect that the agreed settlement terms are adhered to.

A good relationship / reputation takes time and effort to build and sustain, once damaged it is hard sometimes impossible to restore.

Unleashing a whirlwind

Standard & Poor's says it is to be sued by the US government over the credit ratings agency's assessment of mortgage bonds before the financial crisis.

The civil lawsuit would focus on S&P's high ratings in 2007 for some mortgage-backed securities that later collapsed in value, said the agency.

S&P says the case is entirely without factual or legal merit.

The suit would be the first such case over alleged wrongdoing by a ratings agency tied to the financial crisis.

So in today’s world and the threat to the world’s stability comes not from the Mad Scientist but from a new nemesis, best described as the Rogue Banker.

 

Working away not in laboratories but behind banks of computer screens these would be Masters of the Universe were also trying to dominate the world through their own form of financial engineering.

 By developing trading instruments and programmes of ever increasing complexity such as Collaterised Debt Obligations (CDOs), they created monsters which just like Dr Frankenstein they could not control. 

 

 

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.

 

 

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 .

 

Taking the pitcher to the well once too often

The most important component in any business relationship is the question of trust.

 

The ultimate demonstration of trust and good faith is when a Supplier delivers goods to a Customer on Credit terms.  

It therefore is incumbent on the Buyer that they acknowledge this act of trust and observe the agreed payment terms.  

With the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to pall. Once a Supplier feels that their Buyer is taking undue advantage the relationship is damaged sometimes irreparably.  

For any relationship to be sustained there has to be mutual benefit. When a Buyer gains a reputation for persistently crossing the line the merit in maintaining the account is called into question.

 

Value your assets

As I undertake assignments for companies ranging from SME’s to publicly listed corporations, I am struck by the attitude of many senior managers towards the Company’s most important asset namely it's Staff.

Presently we are being bombarded with negative news- failing economies, the squeeze on domestic budgets, the spectre of unemployment etc

This constant drip feed of bad news has a very negative impact. Morale in the workplace at present is generally at a very low point and yet this seems not to have percolated into the mainstream of management thinking.

All too often the attitude of the management seems to be that the current backdrop will of itself be the motivating factor.

Obviously as companies struggle with their profitability, it is not a question of throwing money at the workforce but what is required is more of an attitudinal change.

Bringing the staff on board may well be as simple as communicating the company’s situation in a clear and concise manner rather than the heavy handed “if you don’t like it there are plenty of others ready to take the job”.

It is no coincidence that the companies who emerge stronger from challenging times have been able to do so largely as a result of the efforts of a committed and diligent workforce.

Failing to act aka acting to fail

 

The macho mantra “failure is not an option” is widely heard these days. A more appropriate maxim for these times would be, “Inertia is not an option”.

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

When faced with 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.

Lords of Miselling

The big four High Street banks have been ordered to begin reviewing all interest rate hedging products they may have mis-sold to small businesses.

The Financial Services Authority (FSA) said Barclays, Lloyds, HSBC and RBS would seek to identify and provide compensation to all those customers who had been mis-sold products.

The FSA's announcement follows its own review of 173 such sales last year, of which more than 90% broke regulations.

The products were typically sold to "protect" borrowers from rising rates.

In many cases, banks insisted that small business clients, such as care home providers, veterinary surgeons and pub landlords, had to take out the hedging products as a pre-condition for receiving a loan.

Businesses that bought the products before the 2008 financial crisis were then unable to benefit from the Bank of England's decision to cut interest rates to a historically low 0.5%. Many found they could not terminate the arrangement without paying enormous fees to their lenders.

In some cases, the product was for a larger amount or lasted many years longer than the loans they were supposed to be hedging.

In former times it was easier to spot crooks they typically wore striped jerseys and a mask these latter day highwaymen opt for pin striped suits.