Know when to hold – know when to fold

In business as in poker there are times when discretion is the better part of valour.

Put simply, some of the best business deals are those you turn away.

All organisations operating in today’s climate need to have constant and rigorous focus on their commercial exposure.

Against the current competitive background it is obviously difficult to contemplate turning away business especially from a customer of long standing.

However an objective assessment may well lead to the conclusion that in this instance the business would be left to others.

It may well be that turnover suffers when stricter controls are in place over such elements as payment terms and credit limits.

The reward for such fiscal discipline is obvious. Avoiding defaults by customers not only protects the company’s bottom line whilst allowing focus to be placed on more profitable activities.

Time to grasp the nettle

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 was in many institutions from large corporations to 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 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.

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.

Winning through in difficult times

Viewing the general air of gloom that now prevails in the current climate it is hard to remember the halcyon days of easy money (credit) and the all pervading feeling that the party would never stop.

There is no doubt the world and his wife embarked upon a collective spree for which we are now picking up the bill. With the benefit of hindsight the warning signs were there to see but these were readily ignored. One quotation springs to mind “They that sow the wind, shall reap the whirlwind"

The problem now is that as always there is an over-reaction and just as we never saw the top there is also the certainty that we will not see the bottom.

What is needed is a clear and unemotional assessment of the current climate, whilst few would dispute that difficult times lie ahead we are far from a financial Armageddon.

As always the markets are driven by fear and greed but the importance of sentiment should not be overlooked.

Until and unless the Doomsayers gain a sense of perspective it will be hard to imagine business and markets on a sustained stable footing.

The Greek crisis - a metaphor for our times

In many ways the Greek crisis is a metaphor for our times.

A customer develops a pattern of late payments but far from being called to order the supplier fearful of alienating the customer allows this to become the norm.

When the inevitable tipping point is reached there is no alternative to continue to support the errant buyer or risk realise a loss.

As it is with the Greek situation and the realisation that concessions will have to be offered by the international community in order to keep the plates spinning rather that witness the typical Greek folk custom of plate smashing.

Accompanying this need to reach out to the fledgling Greek coalition there is a growing perception that the problem is just being kicked down the road.

However as the international banking community continues to ponder the consequences of another serious blow to its capital structure the UK banking community will not be immune. At the very least there will be a renewed focus on exposure and this will impact on their willingness to lend.

Now more than ever businesses must demonstrate that they have full control over all aspects of their operations. Reporting procedures must be strictly observed and any potential problem areas or customers brought quickly into line. As it becomes harder to borrow, positive cash-flow is critical.

A true and fair view of the state of the company’s affairs, or smoke and mirrors?

During the recent failures in the global financial system one group of participants have remained largely unscathed for their part in the train wreck, the Auditors.

Now almost as an afterthought the House of Lords has produced a report slamming the profession for failing to predict the financial crisis. It said that firms needed to do more to create a culture of professional scepticism claiming that the level of challenge on intangible assets such as goodwill was woefully inadequate.

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 is being demonstrated with the banking crisis in Spain an unrealistic valuation of the property portfolio either through deviousness or sheer incompetence will ultimately have disastrous consequences.

Rarely will a company or individual be able to hide losses indefinitely as witnessed by the likes of Maxwell, Madoff, and Stanford.

Cutting the Gordian knot

The continuing stagnation in the UK economy has prompted the Bank of England to launch two new stimulus packages.

The Banks latest plan came in response to the worsening economic outlook, governor Sir Mervyn King said.

Together with the government, it will provide billions of pounds of cheap credit to banks to lend to companies.

It is the small/medium companies (SME’s) who have been most impacted by the reluctance of Banks to lend. During the last 18 months there has been acceleration in the number of companies going into administration and or bankrupt.

Despite the intentions of the Bank/UK government to free up lending it will require a sea change in the banking community’s attitude if they are to provide funding.

Fearful of more harm being done to their own balance sheets from the unending crisis in the Eurozone it is hard to imagine the Banks taking other than a hard line attitude towards companies seeking additional lines of credit.

Any approach must be accompanied by a clearly defined strategy for growth together with a credible assessment of current liabilities. This is a time when recalcitrant Debtors and slow moving Stock are luxuries that no organisation can afford.

Difficult times forge strong alliances

 

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.