Blueprint for sales growth

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.

 

Keeping your eye on the ball

Despite many warnings and scares many companies are still failing to adopt a robust approach to their financial controls.



These companies fail to recognise the need for strict discipline in respect of stock turn and control but what is even more disturbing is the reaction to the debtors’ book.



As more and more customers seek actively to delay payment this element of business policing is even more critical.



When a customer exceeds the agreed payment terms, they are in reality using the supplier as an alternate (unsecured overdraft).



If left unchecked this situation can spiral out of control. 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 debt crisis – it is a slippery path.

Without a vigilant approach it will not be unusual for payment terms of 30 days drifting into 60 and beyond. The implications for your company’s financial position are all too obvious.

 

 

The measure of trust

 

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  delaying payment, thereby “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.

 

It is a very short sighted business tactic.

 

 

Getting your fingers burnt

Prior to companies coming to the market much focus is placed on EBITDA – earnings before interest taxes dividends and amortisation.

 

EBITDA has increasingly become the key metric to show the "intrinsic operational performance" of the business, i.e., the performance when all costs that do not occur in the normal course of business (e.g., restructuring costs, ramp-up costs, consulting fees for special projects, special legal fees) are ignored. While this is helpful in general, it is often misused by declaring too many cost items as "one-offs" and thus boosting profitability.

 

Many of the companies have as yet only traded at a loss and based on their history, there is no basis for concluding that these unprofitable companies will ever make money.

That’s the stock in trade for a company about to float whilst losing money. If it were making a profit before its IPO, it would be harder to make bullish forecasts about how much profit the company will generate in the future. 

 

Ironically for a company losing money, the sky’s the limit when it comes to predicting how bright its future revenues will be. 

 

In tandem with the ability to forecast a spectacularly profitable future is the functioning of one of the market’s most basic laws: momentum. In other words powered by its own performance a stock that is gaining value up will continue to appreciate in value just because it is going up.

 

More specifically, when there is no real positive cash flows on which to value a stock, its price will rise because investors who do not own the shares will want to climb aboard the bandwagon rather than miss out. 

 

This wave of “new buying” can help to drive up the shares further, which will attract a new buyers creating a dangerous bubble. 

 

It would probably be a more prudent strategy to avoid the money-losing IPOs and invest in companies who are making a profit before they try and float their shares. 

 

However forecasting the price of stocks remains an inexact science and unfortunately for the investor there is as yet no failsafe basis on which to explain why stocks go up and down.

It is always worth asking the difficult question

One recurring theme from the analysis of any company reporting losses is that the management were totally unaware of the risks which their institutions were running.

 

To be effective, risk management and risk controls rely on the people operating them.

 

As has been well documented all too often corporate culture is dominated by fear and greed and these together make for a toxic combination.

 

When strategies fail and businesses lose their way these two elements come very much to the fore.

 

 Fear can often lead to individuals embarking on an even more reckless course of action in the misguided belief that it will all come right – the gambler’s doubling up mentality.

 

At the same time recklessness is often driven by greed; the larger the risk the greater the reward should it prove to be a successful course of action.

 

Against this background it is incumbent on the management to ask the uncomfortable questions and not merely rely on the assurance that all is well and going to plan.

 

The old adage that if something looks too good to be true it invariably is still rings true.

Collecting the cash

Policing receivables has never been more important than in today’s environment.

 

It must be a priority that all businesses ensure that their customers are settling invoices on time.

 

With slim operating margins the norm, very few companies can afford the spectre of significant bad debts.

 

Small businesses in the UK are owed billions of pounds in late payments, but new research has shown that a third are reluctant to chase slow-paying customers because they are worried about upsetting them or feel embarrassed.

 

Four in five, SME’s say they avoid chasing debtors because they find the process 'uncomfortable', while the remaining 20% are afraid of antagonising customers.

 

This is a dangerous approach resulting in more than a third of UK SMEs reportedly writing off thousands of pounds of bad debt every year.

 

The following are some procedures which companies can employ to increase the efficiency of credit control.

 

Set credit limits for each customer and review these regularly.

 

Be concise in trading terms for example it is better to specify 30 days from date of invoice rather than 30 days from end of month.

 

Issue monthly statements detailing invoices paid and those outstanding.

 

Score your customers and set a collection policy accordingly.

 

Do not let overdue payments go unchallenged.

 

Evaluate aged debtors on a weekly basis.

 

Prioritise collections and press for settlement of the highest values first.

 

Have a plan of action if payment is not forthcoming within a set date.

 

Despite the vital importance of maintaining a healthy cash flow three quarters of SME’s do not have a person or a procedure in place for chasing bad debt and a vast majority have no established escalation process for late payments.

 

This is a recipe for disaster.  

 

 

Its within our power

 

External factors over which little control can be exerted will continually 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 today’s business environment 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.

 

How much revenue is lost arising from an existing or potential new customer not wishing to endure the frustrations of automated answering and merely hanging up?

 

How much “repeat business” is lost owing to the failure to meet agreed delivery schedules?

 

With such experiences customers are left feeling that their business is not valued. It is 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 focus their energies on customer service will see their business reaping the benefits

 

 

Cleansing the Augean stables

Following the financial crash of 2008 there was a general feeling that those perceived responsible for financial shenanigans should be held to account.

 

Some years later a tough new law to prevent future financial collapse is about to be introduced. For the first time non-executive directors could face the possibility of criminal charges if financial misconduct occurs on their watch.

 

As the various banking disasters unfolded we heard how ostensibly “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.

 

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 crash whilst being rewarded handsomely.

 

The only way to redress this imbalance is with tough legislation.

The danger sign are visible

 

There are numerous tell tale signs which point to the fact that a company may be heading into trouble.

 

The following is a basic check list which should help to determine whether the problems are of a temporary nature or have more serious implications for the future of the company:

 

The most important element in any business is maintaining a healthy cash flow. It is imperative that a strict control is maintained on all outstanding invoiced amounts.

 

The value of an efficient credit control system cannot be over emphasised.

Do not focus on generating sales with little margin in the belief that over time things will improve.

 

Being the “cheapest supplier” will not provide an automatic route to more satisfactory profits in the long term. It is often better to keep your powder dry.

 

If you are constantly in danger of breaching your credit arrangements with the banks or suppliers this is a clear indication that the company is not trading satisfactorily.

 

As the company’s financial health deteriorates more and more time is spent focussing on the problems and not enough on to how to position the business for the future.

 

Particularly for owners of SME’s it is not easy to take the necessary remedial actions and very often this is where an outsider can be of assistance in repositioning the business before it is too late.

 

 

Efficient Stock control

 

Stock turnover ratio equals cost of goods sold during a specific time frame, divided by the average stock holding during the period.

 

The result of this ratio gives the "number of days that on average money is tied up in stocks". The longer this is, obviously the worse this is for the business as the money is not available to be used elsewhere.

 

An stock turnover ratio of 20 means that the average amount of stock holding during the year has been renewed, or turned over, 20 times over the course of the year.

 

Dividing the number of days in the period under consideration by the turnover ratio tells you how many days it takes, on average, for the warehouse to empty and then be refilled. The number of days in a year, 365, divided by 20 is 18.25. So the entire stock is fully sold and replenished every 18.5 days, on average.

 

As a general rule, the higher the stock turnover ratio, the more efficient and profitable the firm. A high ratio means that the firm is holding a low level of average inventory in relation to sales.

 

Carrying stock ties up money. This money is either borrowed and carries an interest charge, or represents funds that could otherwise be better used in servicing other elements of the business.

 

There are additional costs in holding stocks such as storage and the risk of getting spoiled, breaking, being stolen, or simply going out of style.

 

Wherever possible companies need to reduce stock holdings and there are various means by which to achieve this aim:

 

Liquidate slow-moving or obsolete stocks.

 

Introduce more efficient production techniques to reduce stock holdings.

 

Rationalise the product range weeding out the under performers and thereby reduce stock carried.

 

Negotiate sale or return with suppliers in order to avoid being stuck with unwanted product.

 

Keyboard crime the new growth industry

 

Losses from online banking fraud rose by 48% in 2014 compared to a year earlier.

With the ever increasing reliance on computer based transactions all businesses and organisations must be alive 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.

 

In smaller organisations fraud can take many forms e.g. invoice scams, to suppliers providing kickbacks for inflated purchases, theft of stock, fictitious expenses etc.

 

For larger organisations the potential for various fraud activities exists but the numbers involved are far greater.

 

One area of particular concern is invoice fraud. Fraudsters send in fake emails which contain new payment details. If a company is not vigilant payments are then made and by the time that the mistake has been identified the fraudsters have long since transferred the funds.

 

In one recent case a Norfolk based manufacturer fell victim to this scam. Believing that the invoice came from a usual supplier they transferred £350,000 to a fraudulent account and were unable to recover this money.

 

All organisations should have systems in place to monitor all of the company’s finances and commitments in a clear and concise format.

 

Simple but effective systems of checks and balances can go a long way to limiting if not removing the risks.

 

It is all but impossible to ensure that any organisation is “fraud proof” but by establishing robust and efficient systems some measures of comfort can be introduced.