Thought for the day

What’s the difference between an inside straight and an inside trade?

One involves gambling in a game of poker, and the other involves wagering with your life.

One may net you $5,000 in a poker tournament while the other may result in you serving 5 years prison time.

A check list to drive sales

Focus on niche markets - there is an advantage in positioning your company as a market leader in a niche market.

Target a niche market that drives the greatest sales, profitability and quickest sales cycle.

This will produce sales growth with the least amount of effort. Niche market leaders generate strong sales revenue and profit growth driving up the value of their business.

Promote your products - drive increased sales growth by offering customers bespoke packages such as volume discounts, extended contracts or product bundles.

There is no merit to be gained from discount pricing on your offerings if they truly provide the value described.

Develop your brand - unique design, functionality and technology can make your products proprietary, which can increase the desirability of your products/services and the price a buyer is willing to pay. Branded products offer protection from the competition and enabling sales of products at a higher price and profitability.

Highlight your USP - even if your company are offering products that are not proprietary, it is vital that customers recognise what makes your company different to the herd.

When you do this successfully, your company becomes the first choice and achieving sales targets will not be an issue.

Jettison underperformers - the best way to dramatically lower your costs and improve profitability is to shed underperformers. Evaluate all of your products and services and delist them if they are not profitable or helping to drive sales of your other products.

Ensure that marketing is delivering a positive return on investment. Less easy is the evaluation of the sales team but in reality underperformers are a luxury no organisation can afford.

Auditing the Auditors

The majority of the flak following the recent failures in the global financial system has been largely directed at one sector i.e. the Banking industry. One group of participants remained largely unscathed for their part in the train wreck, the Auditors.

There are now signs that the activities of this sector is coming under closer scrutiny. Auditors are in a very privileged position and their integrity is paramount.

Earlier this year in the UK subprime lender Cattles has launched a multimillion-pound claim for damages against PwC, alleging “audit negligence” for failing to spot major holes in its accounts in 2006 and 2007.

Cattles said the failure resulted in it piling up £1.6bn in debts and liabilities, bringing the FTSE 250 firm to the brink of collapse and forcing it to suspend shares in 2009.

A spokesman for Cattles said, "After a thorough, independent and objective review of the merits of this claim, it is clear to us that PwC were negligent in their role as auditors. As a consequence, Cattles and its creditors suffered very significant losses."  

Meantime in the US authorities have brought criminal and civil charges against  former senior partners at accountancy giants KPMG and Deloitte Touche over alleged insider trading.

 

However it is not just about negligence or illegal activity, there are many instances of conflict of interest such as taking on consultancy work for clients and becoming too cosy with management teams. 

Back in April, John Griffith-Jones, the former boss of KPMG (and now head of the Financial Control Authority) was under pressure after it emerged that he was involved in setting the terms of an investigation into the collapse of HBOS despite the fact that KPMG were auditors to HBOS from 2001 to 2009.

Recently it was announced that the former head of HMRC Dave Hartnett was joining Deloitte who have helped large corporations avoid large tax bills.

At the lower end of the scale 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. Very often the senior management of the company being audited and the auditors can end up signing off on a “nod and a wink”. 

The validity of a company's accounts reflects both the integrity of the company which is being audited and that of its auditors.

 

 

Squeezed by leverage

As a legacy of the private equity boom an increasing number of companies are now finding their activities largely targeted to satisfying their repayment obligations to their bankers. Companies are finding their growth restricted as money which is needed for new projects is swallowed up in servicing debt.

 

A case in point is Birds Eye, Europe’s largest frozen food producer. Birds Eye has had to pay about £5 million in penalty charges to win breathing space from its lenders. Total bank borrowings now stand at Euro 1.8 billion with a further Euro 1 billion owed to investors in the form of loan notes.

 

Banks that formerly were willing to take a more lenient attitude and renegotiate loans are playing by much harder rules.

 

As companies increasingly find their ability to borrow restricted, they have to revisit payment terms with their customers. It becomes a vicious circle from which very few are immune.

 

The key is to make the most of available cash resources which inevitably leads to some hard commercial decisions. Late payers are a luxury that no company can afford in this climate. Stock must be turned as efficiently as possible.

 

Those who either will not or cannot adapt to the demands of today’s business will join the growing list of casualties.

 

 

Keeping all the plates spinning

Managing a business in today’s environment is a complex affair – it has been likened to playing chess in the dark.

 

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.

 

A clinical evaluation of all areas of risk and reward will identify areas of potential concern and most importantly the ways and means by which to address them.

 

The question that needs to be answered initially is – how much longer can I keep all those plates spinning?

 

Food price inflation - no let up for the foreseeable future

 

As affluent consumers in China and India demand a more Western style diet we are seeing the effects on the price of meat and other foodstuffs.

 

During the past year UK Food price inflation has seen the price for Meat rising by 5.4%, Fruit by 10.2% and Vegetables by 5.4%.

 

For 2014 the rate of food price inflation in the UK is forecast at 3.8%.

 

Food manufacturers are caught in a vice; the buying pattern for many continues to be “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.

 

The value in reviewing your business plan

As business practices change and external factors come into play a regular review of the company’s business plan will ensure that the company stays ahead of the game.

The review if done correctly should result a realistic, objective and clinical appraisal of the business.

Following an analysis of the business plan it should be easier to communicate objectives and strategies to those funding the operation and also to the company’s employees.

The review will serve as a reference point when determining the effects of alternative courses of action on business operations.

A clear assessment of current working practices should highlight areas where the company may require outside assistance.

An analysis of the current inventory levels and receivables will provide the answer to the future growth and capital requirements of the business.

 

 

 

Effectient Stock Control

 

For suppliers and manufacturing companies alike the efficient management of stock is a vital element of their business.

In many cases business failures can be traced back to the inability of a company to turn its stock back into cash within an acceptable time frame.

It is worth noting the costs associated with carrying stock:

Holding stock ties up working capital with otherwise could be used for other purposes therefore it has an opportunity cost.

All stock being held incurs storage costs such as rent and other utilities. Insurance especially for high value goods also is an expensive add-on.

If goods are being funded via a Bank overdraft or loan this may well inhibit the company’s ability to finance other activities as Banks are reluctant to extend terms.

There is always the danger that stock can become obsolescent or in the case of perishable products deteriorate and become a write off.

The only way to ensure that a company keeps track of this area of exposure is by constant monitoring of stock levels and focussing on unusual or irregular patterns in the movement of stock.

 

Everyman for himself

  

There is a growing pressure on suppliers to accept extended payment terms if they wish to retain the business.

 

Companies who previously had accepted 30 day payment terms are now requesting periods of up to 90 days.

 

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 at a time when banks are unwilling to increase their credit lines.

 

It has been general commercial practise for companies to try to stretch the length of their payment terms by all manner of means both fair and foul.

 

However 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.

 

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

 

 

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

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

Too often companies pursue to same strategies because they are fearful of embracing change. This inertia can have very damaging implications.

This is where an “outsider” can be of assistance – an objective appraisal can provide the solutions by which the company can move forward positively as opposed to drifting.

Managing in challenging times

 

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

 

The causes for this are readily identifiable, many people are struggling with their own domestic finances( latest figures from the UK’s Money Advice Service show 18% of Britons, 8.8 million people, consider they have "serious" financial issues),  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.

 

 

Forging effective partnerships

 

Over recent months the focus on the current economic background has tended to focus on the negative. However one of the benefits to have emerged 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 essential that good understanding and clear communication exists between supplier and their buyer.

 

In as much as a supplier is 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.

It is a simple but effective quid per quo.

 

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

 

Failing to act, acting to fail

 

Very few companies implode like a supernova. In the vast majority of cases the distress signals are visible for some time before the flame out.

There are many tell-tale signs such as consistent abuse of payment terms, erratic ordering patterns and lack of response to emails or calls. These are early warning signals.

When faced with mounting problems it is highly likely that the solutions will of necessity be painful. However, radical and decisive surgery is often the only way to ensure a patient’s survival.

Unfortunately 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 problem issues the outcome will inevitably remain the same.

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 in truth 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 increasingly competitive times there are many who would willingly take this “problem” and accompanying revenue off of your hands.

 

 

Time for review

We are seeing further evidence of the unstoppable rise of e-commerce in the run up to Christmas. However for the more traditional retail outlets there is a growing concern that the vital sales boom is not materialising. This in turn will impact upon suppliers.

Without doubt now is the time to tackle potential problem areas with some effective housekeeping.

 

One of the first areas for scrutiny is the level of inventory which is being carried. Make sure levels of stock turn are satisfactory and that obsolete stock is not being carried. Rather than face a “fire sale” it may well be prudent to lighten up now with some innovative marketing strategies.

 

A healthy cash-flow is essential. With the backdrop surrounding financial institutions and governments alike, don’t rely on the banks to readily provide additional finance- it is an absolute priority to maintain positive cash-flow and this can only be achieved by keeping debtors firmly managed.

Undoubtedly, we will see failures in the early weeks of 2014 – now is the time to do everything you can to ensure that your company doesn’t become part of these statistics.