Keeping all the plates spinning

Managing a business in today’s environment is a complex affair – it has been likened to playing 3 D Chess.

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. This is where an independent appraisal can identify areas of potential concern but more 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?

Caution is the watchword

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

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

However, there are times when subsequent events show that on occasion the best business decision was to leave it to your competitors.

When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.

The upside of such fiscal discipline carries its own rewards. Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.

Digging deep to survive

The retail sector is particularly challenged at the moment as domestic spending is reined in. Facing continual squeezing of operating margin the quest is for innovative ways to drive sales.

 
The new buzz phrase in retailing is "multi-channel", loosely defined as a strategy that involves selling through stores, websites, mobile phones, catalogues, social networking sites, et cetera. Basically it is an all encompassing process designed to maximise sales revenues.

Not all business models can embrace this system but there has rarely been a time when the old adage of “work smarter” has been more relevant. As more and more obstacles are thrown up to threaten operating margins everyone in any commercial organisation must ensure that they are operating at optimum efficiency.

Retailers are pinning their hopes on “multi channelling” – but they are not the only sector having to radically re-think strategy in these austere times.

 

Avoiding banana skins

When reviewing operating systems and strategic plans, it is 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 “supporting” the errant Customer for fear of realising a bad debt. Think of the parallel to the Greek debt situation and the constant payment restructuring – 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? Have you considered the damage that is being done to your company’s financial position?

Ask yourself “who is picking our pocket?”

It may well be that you conclude that an overall appraisal of your business is overdue - this is where I can help.

Why not get in touch with me at gordon.blackburn1@btinternet.com and I’ll help you get back in control.

 

Food price inflation it’s going to get uglier

Since 2007 the increase in food prices in the UK has been in excess of 30%.

Currently UK Food price inflation in running at 3 - 3.5% but looks set to rise to 5%. 

On a global basis the recent hikes in price of key grains such as corn, wheat and soybean were recently described by the World Bank president as "historic".

The bank warned countries importing grains will be particularly vulnerable. 

During June to July 2012, corn and wheat prices each rose by 25% while soybean prices increased by 17%, the World Bank said. Only rice prices decreased - by 4%. 

In the United States, the most severe, widespread drought in half a century has wreaked havoc on the corn and soybean crops while in Russia, Ukraine and Kazakhstan, wheat crops were badly damaged. Here in the UK the effects of the wettest year on record will filter through in the coming months. 

The World Bank said that the use of corn to produce ethanol bio fuel - which represents 40% of US corn production - was also a key factor in the sharp rise in the US maize price.

Livestock and milk related products will rise in accordance with the higher costs of grain based feedstuffs. 

Food manufacturers are caught in a vice; the buying pattern for many has been “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 they will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.

 

Diversification – not always the silver bullet

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 own 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 embattled balance sheet.

The integrity of Financial Reporting

Towards the end of 2012 more reports surfaced in respect of companies who had been camouflaging their poor performance with some suspect off-balance sheet shenanigans.

This is not an isolated event, think of the recent problems with losses incurred by various Banks. However it highlights how vital it is that Senior Management set clear defined operational and reporting procedures.

In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

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 often a prudent course of action to look under a few stones – just in case.