Up close and personal

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

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.

It is not possible to develop and maintain an ongoing business relationship and mutual understanding based upon a key pad and email ordering system.

 

The crowds are baying for blood

US Prosecutors have recently issued criminal charges resulting from the alleged cover up of the losses at JPMorgan of $6.2 billion on derivative trading.

Currently three of the front line “players” are in the frame but as anyone who has worked in a trading environment will know these figures represent an easy target.

As the various banking disasters unfold we hear how “mega profits” were being generated and that nobody thought that this seemed too good to be true.

When an individual or group of individuals are labelled “star traders” the culture of these financial institutions is such that it is virtually impossible for anyone to check or challenge them.

There are few prizes for killing the golden goose.

Even more ludicrous is the lack of independent controls which left many of the traders to self-police their own portfolio.

Whether by design or delusion what trader facing enormous losses is willingly going to face up to the reality of the situation?

The preferred course of action is to continue betting more heavily in a forlorn hope to recoup the losses. It is an all too familiar tale.

The regulatory authorities may pursue some of these irresponsible traders in an effort to appease those who think that the bankers “got away with it”.

In due course a few of them may end up going to prison but the vast majority with have nothing to fear.

In reality the really guilty parties are those who were operating at the very highest levels in the banking communities.

Whilst not directly responsible for the specific transactions they oversaw the deeply flawed system. Whether driven by greed for increased profits or fear of not keeping pace with their competitors they presided over the ultimate train craash.

 

 

 

Mixed signals from the East

  

Li Keqiang the Chinese Prime Minister is now targeting growth this year of 7.5%.

 

This marks a more conservative view than that taken by the World Bank, as well as private sector banks, who had predicted growth to slow to 8% this year.

The government has said it will take steps to try to support the economy but faces a difficult task in putting more money into consumers’ pockets and to effect the shift from state directed investment to consumption and services.

Another problem facing the government is the amount of money held in China’s shadow banking system (thought to be around £200 billion) currently invested in Trust Loans and High Yield Bonds.

As witnessed by the fall out in the Western banking system these financial “instruments” carry an unquantifiable degree of risk.

The spectacular growth in the Chinese economy was fuelled by an export boom as China established itself as the workshop of the world.

China’s exports have picked up in recent weeks but with European economies still in a fragile state the implication for export growth is obvious and the potential for the Euro debt crisis to spread would inhibit export growth in the months ahead.

The other side of the equation is domestic demand. As was witnessed in Britain during the Industrial Revolution more and more people are leaving the countryside to seek work in the cities. By 2035 it is estimated that 300 million will have re-located bringing with them increased demand for housing and consumer goods.

 

 

The spectator always get the best view

 

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, for a variety of reasons, 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.

Where's the family silver?

 

It is incomprehensible that so many companies be they large or small fail to keep an adequate control of their inventories. Similarly companies neglect to rigorously police their receivables.

 

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.

It is a truism that no business deal is complete until the invoiced funds are in the seller’s bank account.

This begs the question: how comfortable are you with your stock and debtors controls?

A worthwhile exercise would be to review operating systems now rather than adopt the let’s hope for the best style of management.

 

Symbiotic relationships offer a route to survival

  

All too often the focus on the current economic background accentuates the 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.

 

 

Adding value

 

There are only two courses of action when attempting to boost the bottom line, cut operating costs and generate additional revenue.

Many organisations opt to reduce staffing numbers as a quick fix but there is a danger that in line with reduced personnel there is an accompanying decline in operating standards. In such circumstances customers often choose to vote with their feet.

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.

In many instances companies would be advised to make customer service their USP but this requires the commitment of a dedicated work force not one that is pre-occupied with the spectre of further redundancies.

 

The bullies are at it again.

 

During recent years many companies focussed on the element of supplier’s credit as they sought to improve their own bottom lines.

By virtue of their purchasing power large corporations such as the supermarkets are able to squeeze their suppliers.

It is the SME’s who are feeling the pressure with the latest report from BACS (the payment body) showing that the average small business was owed £31,000 in overdue payments in April, amounting to £30.2bn across the UK economy. According to the BACS report SMEs currently wait an average of 38 days.

In the UK already late-payment laws that give small businesses the right to charge interest, but many avoid doing so for fear of upsetting customers.

The EU issued a directive in March which aimed to enforce similar measures across the union, with public bodies given 30 days to pay and businesses 60.

Cash flow is a vital element for any business and timely payments are crucial for small businesses trying to grow.

Over the past couple of years many companies have lengthened payment terms seeing the suppliers as a soft target.

With suppliers consistently facing a declining return it should come as no surprise when they conclude that the game is not worth the candle.

Ignore the warning signs and they will bite you

IThe 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.

 

 

The hidden risks of diversification

 

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 vulnerable balance sheet.

 

That’s not the way to do it!

 

There’s a sense of déjà vu about the latest debacle to surface from the Banking industry. This time it’s the US Bank JPMorgan under the spot light having ran up a staggering loss last year of $6.2 billion on derivative trading.US Prosecutors are to file criminal charges resulting from the alleged cover up of the losses.  

The comment from the Bank’s CEO was truly astonishing “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored” he added “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There are many errors, sloppiness and bad judgements. It puts egg on our faces and we deserve any criticism that we get”. As a mea culpa that statement takes some beating!

Despite the havoc that their action caused to the global economies, these self appointed “Masters of the Universe” are still trying 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 cannot control.

Unfortunately the implications of their misplaced arrogance go far beyond the damage done to their own bottom line. Contrast the position of the senior personnel at JPMorgan with the owner of a cash-starved SME operating against the current backdrop.

It is ironic that the Banks are reluctant to fund legitimate operations at a time when their own activities have in so many instances been so damaging.

 

Gilding the lily

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

 

Directors of many companies simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run. This has been especially true in the case of non-executive directors.

 

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 prudent to implement some rigorous analysis in order to avoid any unpleasant surprises.

A rose by any other name

Following the financial crisis of 2008 there was much talk of a collective reigning in and return to the principles of sound business.

However memories are short and it is never long before the blurring starts again and risky practices again become more and more the norm.

There is now a concerted move afoot to rehabilitate the image of leverage. This was the mechanism which more than any other precipitated the disaster in the financial system.

Companies no longer speak of leveraged deals but are now taking on “sponsor finance”.

This re-branding has in-built danger as witnessed previously, complacency has resulted in the demise of numerous organisations.

As George Santayana commented “those who cannot remember the past are condemned to repeat it”.

 

Beyond this place there be dragons

 

The combination of recent market volatility, the ongoing problems 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.

Rigorous 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 guarantee as to future performance. Very few businesses fail overnight
and there are usually enough warning signals which should enable a supplier to reduce its risk. Be on the lookout for early warning indicators 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.

 

Crossing the line

 

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 questionable.

 

Getting personal brings its rewards

 

Resulting from technological advances 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.

 

Customer service - the art of the achievable

  

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.

 

All companies have their share of difficult Customers 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.

 

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.

The merit of a Pre-emptive strike

 

The current economic data point to the fact that the third quarter of 2013 will produce 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 top to tail 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 tackle difficult issues rather than adopting an ostrich "head in the sand" attitude.

When trying to explain the outcome of 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”.

 

 

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 companies who hitherto had paid on the basis of 30 days to now demand switching their suppliers to 90 day payment terms.

A growing number of companies are seeking to stretch the length of their payment terms by all manner of means both fair and foul.

Such terms can only be served by larger organisations 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.

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

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.

 

Banking scandals – nothing new

A record from the Bank of England’s archive shows it transferred £5.6m of gold from Czechoslovakia on behalf of Germany's Reichsbank, following the Nazi invasion in 1939.

The gold was moved from the National Bank of Czechoslovakia's account at the central Bank for International Settlements (BIS) to an account managed on behalf of the Reichsbank.

Some of the gold was later sold in London.

The Bank produced the 10-page document, following the Second World War amid fears the bank's position had "never been thoroughly appreciated" and that "their action at the time was widely misunderstood".

It states: "On March 21, 1939, the Chief Cashier received the request to transfer about £5.6m gold from the BIS No.2 Account to their No.17 Account.

"The bank, although it was no business of theirs, was fairly sure that the No.2 Account was a Czech National Bank Account and they believed, although they were not sure at the time, that No.17 was a Reichsbank.

The amount was transferred on the same day and a small further amount on March 22.

Between March 21 and 31, the gold received on the No.17 Account was disposed of, (with) about £4m going to the National Bank of Belgium and the Nederlandsche Bank and the remainder being sold in London."

Particularly telling is the comment “although it was no business of theirs,(the Bank) was fairly sure that the No.2 Account was a Czech National Bank Account and they believed, although they were not sure at the time, that No.17 was a Reichsbank.”

That’s certainly a tried and tested defence which we’ve become used to hearing.

As recently evidenced with the Banking community it’s a case of plus ça change.