Early warning indicators

 

Very often the best indicators are the least sophisticated. The UK retail sector remains in a very fragile state – the clearest evidence of this can be seen as you walk down any High Street.

The number of shoppers on UK High Streets fell last month, according to the British Retail Consortium (BRC).

Its latest monthly footfall monitor said shopper numbers declined 1.2% in December, compared with a year earlier.

The BRC data comes after official figures revealed that UK retail sales fell last month.

The Office for National Statistics said that sales in December were 0.1% lower than November, but clothing and food sales particularly struggled.

The BRC said that the decline for the month as a whole came despite a rise of 7.5% in shopper numbers in the immediate week before Christmas.

Helen Dickinson, director general of the BRC, said: "Weak spending power is keeping people away and compounding long-standing difficulties in many of our town centres.

"This month's retail failures confirm the challenges are far from over."

The rising number and popularity of charity shops tell underscore that many families are struggling. Consumers struggle with debt and job insecurity.

As the knock on effect percolate back down the chain many businesses will suffer. External factors by definition are difficult to handle but at the same time in-house disciplines can at least provide some insulation.

Cash-flow will remain difficult to manage so as always strict governance of Debtor and inventory control will provide some measure of comfort.

 

Be on your guard

As the economic realities continue to bite all businesses and organisations must remain alert to the potential for fraud. Companies blamed insider fraud perpetrated by either management or employees for 80% of fraud-related financial losses last year.

 

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.

 

A recent report By KPMG has identified areas where companies are potentially exposed these include back-office fraud, procurement fraud and essentially plain old-fashioned con tricks.

Counterfeit fraud in 2012 was three times higher than the five-year average, at £22.9m; Ponzi schemes worth £72m came to court last year - three times higher than the level in 2011; and the value of fraud committed by employees almost doubled to £25.1m over the last 12 months.

It is vital to have systems in place to monitor all the company’s finances in a clear and concise format. After all it is never comfortable experience to find that someone has their hands on your wallet.

This problem will not go away so vigilance is the order of the day.

 

 

 

 

Spot the fault line

 

The overriding lesson from the calamities in the global financial mess was that the monitoring systems were inherently flawed. 

Exotic trading products and programmes were created which like the Frankenstein monster quickly became uncontrollable. Risks were taken on an unprecedented scale and those supposedly monitoring risk were “asleep at the wheel”. 

Recklessness was encouraged and became the default position. There were no checks and balances – it became for the participants in the so-called casino bankers a safe bet. 

What’s the worst that could happen following a spectacular flame out? Maybe you lost your job and had to move to another bank or institution. Get it “right” and the rewards were sky high. 

Whenever there is a bonus culture unless the supervisory systems are rigorous there will be potential for abuse.

Apart from the self-inflicted wounds the general public fell foul of the culture. One whistleblower at Barclays was quoted as saying   “It's a very high-pressure environment. The way we are paid means there is a lot of emphasis on getting people to invest more of their savings in the stock market than they should.' He added  “Some of the things we sell — such as structured products — are rubbish.”

A little like bolting the stable door after the horse has bolted the FSA has now decided it is time for a clampdown on bank, building society+ insurance company staff being paid commission on sales. 

This follows years of obvious laissez faire when for example it was quite normal for people to borrow based on self-certification of earnings, a recipe for disaster if ever there was one. 

Whether through greed or stupidity there will always be people willing to take potentially catastrophic chances. What is required is that the senior management spend less time forecasting their own bonus and more time scrutinising the bottom line and understanding how results are achieved. Until this balance is in place disasters in the financial system will continue to occur.

 

 

Choppy waters ahead

Choppy waters ahead

The UK economy shrank by 0.3% in the last three months of 2012, further fuelling fears that the economy could re-enter recession.

The economy had grown by 0.9% in the previous quarter, boosted by the London 2012 Olympic Games.

For the whole year, growth was flat.

As the UK government wrestles with its debt burdens the only certainty is there is no silver bullet.


The all pervading sense of nervousness will continue to impact on all business sectors. The days of easy access to finance are long gone.

 

Companies need to focus on their exposure at every level ranging from inventory levels, rate of stock turn and the integrity of the debtor’s book.


Operating in this current climate of austerity will provide the ultimate challenge for those managing companies, be it an SME or a large multi-national corporation.

 

Lessons from history

 

Rarely in life either privately or in a commercial environment do we come across an entirely unique or new situation.

The current situation facing the world markets and business has parallels with previous financial crises such as the 18th century South Sea Bubble, the Victorian Banking crisis of Overend & Gurney, the Great Depression which followed the 1929 Wall St Crash, and the Dot Com Crash. In all of these episodes the common denominators were reckless pursuit of profit whilst fundamentals were ignored, the so called “get rich quick” school of business.

Following each of these debacles there was a collective reigning in and return to the principles of sound business.

However memories are short and it is not long before the blurring starts again and risky practices again become more and more the norm.

Complacency has resulted in the demise of numerous organisations.
As George Santayana commented “those who cannot remember the past are condemned to repeat it”.

 

Revving up the bottom line

When attempting to boost the bottom line there are 2 obvious courses of action, cut operating costs and generate additional revenue.

Many organisations opt to reduce Staffing numbers as a quick fix but there is a danger that in line with reduced personnel there is an accompanying decline in operating standards. In such circumstances customers often choose to vote with their feet.

The Sales Director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

In many instances companies would be advised to make customer service their USP but this requires the commitment of a dedicated work force not one that is pre-occupied with the spectre of further redundancies.

 

Consumer confidence – the litmus test

One of the tests of the English legal system is “what would the man on the Clapham omnibus think?”

Basically this is the reaction to any problem or situation that could be expected from a reasonably educated and intelligent but non-specialist person.

In the current economic climate many companies would do well to ask “what does the man standing in the queue at the Clapham Supermarket checkout think?”

The problem is that many people running businesses (or for that matter senior politicians) are too removed from the realities of life to effectively understand the economic difficulties faced by the ordinary consumer.

It is a very easy exercise but a few minutes spent in the supermarket or on a garage forecourt will give a true insight into the problems and frustrations currently felt by the ordinary consumer.

Until such times as the man in the street starts to regain some confidence there is little chance of economic recovery gaining momentum and the failure rate particularly evident in the UK High Street will continue to accelerate.