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.

For example in Japan  the former Olympus chairman, Tsuyoshi Kikukawa, has pleaded guilty to charges of falsifying accounts, covering up losses of $1.7bn(£1.1bn). Kikukawa and 2 senior executives admitted to hiding losses dating back to the 1990's.

This begs the question that during that lengthy period how many Auditors examined the validity of the reported accounts?

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.

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 was 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.

 

Make service your USP

We are operating in times when everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as times become tougher and business harder to win the level of service offered by many Suppliers is falling very short of acceptable standards.

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules Customers are left feeling that their business is not valued.

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 master the art of Customer service will emerge from this current difficult period all the stronger.

 

It pays to get personal

 

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.

 

Don’t be a soft touch

 When asked to review operating systems, I find it surprising that even in these difficult economic times many companies continue to adopt a laissez faire 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 in the reaction to the Debtors book.

As more and more Customers seek actively to delay payment to Suppliers 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). I have seen this situation spiral out of control so that in a worst case scenario the Supplier is forced to keep “trading” with the errant Customer for fear of realising a bad debt. Think of the parallel to the ongoing EU debt problems – 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? What damage is being done to your company’s financial position?

Ask yourself “who is taking advantage of us?”

 

A Spanish bail out looms

The results of independent stress tests of the Spanish banking sector will be published on 28 September.

But previews are already being sent to the country's financial institutions.

It seems likely that the Spanish government has already put in place economic reform plans that would allow it to apply for a bailout immediately.

Spain's banking sector needs recapitalising, and much of the money would come from 100bn euros in European Union funds already pledged by eurozone finance ministers in June.

It seems likely that the bail out would be in the region of 75-80 billion Euros

Time and again we are seeing reports coming from the Banking sector where massive losses have been established and yet it would appear nobody was monitoring these developments.

It is all rather reminiscent of the old variety act where a performer started to spin a sequence of plates as long as he could keep running and adjusting the spinning plates all was well but as soon as he stopped the whole scenario collapsed. So it is with the Banking system.

 

 

Today’s mantra – keep cutting the costs

 

With operating margins being continually squeezed it is imperative that costs are rigorously monitored.

Every sector is seeing the impact e.g.  FedEx the world's second largest package delivery company are seeing their customers moving business from air to slower and less expensive routes.

Manufacturers of electronics and mobile phones are now shipping cargo by sea because competition was eating into their profit margins meaning they needed to cut delivery costs.

Traffic will continue to moving onto the water because moving goods by air is very energy-intensive and the high cost of jet fuel was making air freight too pricey.

Facing marked resistance from consumers to price increases and a greater level of competition those companies who are unable to control costs have an uncertain future.

Time for a Strategic review

The current economic data point to the fact that the coming months will produce difficult challenges for all. As domestic budgets are ever more squeezed this will impact on businesses across the board. The latest results from Money lender Wonga illustrate the strong demand for credit during the downturn.

Net profit more than trebled to £45.8m in 2011, from £12.4m in 2010. Revenue grew at a similar rate, to £185m.

The number of loans made by the company quadrupled to almost 2.5 million. Bear in mind these are short term loans to individuals and small companies struggling with cash-flow issues.

This is the 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 redefine strategy rather than adopting an ostrich "head in the sand" attitude.

When trying to explain a disastrous set of accounts 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”.