Seeking the philosopher’s stone.

 

When trying to boost the bottom line, there are 2 obvious courses of action; reduce operating costs and increase revenue. If you’re the FD you’ll probably aim for both.

 

The decision by the new CEO of Anglo American (one of the world's largest diversified mining and natural resource groups), to sell the company’s $30 million corporate jet is not merely showboating but an example of the new sense of realism in the corporate sector.

 

There is a new wave of executives hired in recent months to slash spending and sell assets after years of profligacy at the world’s top companies.

 

As to generating revenue, 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.

 

As such for most companies it is about getting back to the basics – ensuring orders are processed efficiently and in a timely fashion. Following up on customer satisfaction, in short providing what in old fashioned terms was called “service”.

 

Sometimes it’s best to walk away

 

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.

Similarly a business transaction with a slim margin of profit carries a disproportionate risk/reward ratio.

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

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

 

 

Back with us again – the usual suspects fear and greed

 

After a substantial rally in the Global stock markets we have recently seen some turbulent trading and wild price swings.

 

Whilst some commentators remain bullish the recent spate of economic news from China, the Eurozone have clearly unsettled some operators.

Now is the time to remain focussed and consider the implications for your business.

 

Just as was evidenced during the credit crunch crisis in the summer of 2008 there is a question mark over the manner in which the Banks will respond to the current inputs.

 

The problem for the Banks is that because of the legacies of their previous mistakes they are effectively stifling their customers businesses as they look to batten down the hatches and strengthen their own balance sheets.

 

It will remain difficult to gain support from the Banks in the coming months therefore it must be the absolute priority to keep a strict rein on your finances – make sure that your Debtors Book is strictly controlled and ensure that Stock turn and inventory levels are well policed.

 

With their houses still far from in order, the Banks will undoubtedly remain conservative in their approach to lending, so the order of the day is work within your current limits and maximise your profits.

 

Eurozone concerns persist

The Organisation for Economic Cooperation and Development (OECD) has painted a troubled picture of the Eurozone economy. The forecast of a 0.6% contraction in GDP is down markedly from the 0.1% contraction forecast just six months ago.

It said Eurozone unemployment would continue to rise from its current rate of 12%, stabilising in 2014.

It blamed continuing austerity measures, weak confidence and tight credit conditions. It hinted that the European Central Bank (ECB) might want to expand quantitative easing (QE) as a measure to encourage stronger growth.

It warned the continuing weakness in Europe "could evolve into stagnation, with negative implications for the global economy".

The US and Japan have seen a greater focus on stimulus measures compared with Europe, where austerity measures have taken precedence.

 

It is evident that while the threat of a Eurozone break-up may have subsided, a long term solution to the debt crisis is yet to be found.

 

The problems in Eurozone have not gone away. Essentially people are either choosing to ignore them or are seeing what they want to see.

 

Currently unemployment continues to rise in countries such as Greece and Spain, a delayed solution may see the crisis escalate, a move which is likely to hurt investor morale.

 

Countries such as Greece and the Republic of Ireland that have been bailed out by international lenders continue to see their economies shrink.

Meanwhile larger economies such as Spain have imposed spending cuts in an attempt to avoid having to ask for a bailout. The recent problems in Cyprus served to highlight the problem.

 

The austerity measures in many countries - mostly in southern Europe - have combined tax rises with cuts in salaries, pensions, benefits and social services.

 

Apart from the social cost the spectre of unemployment represents a major threat to economic recovery within the EU together with all the global implications it brings.

 

Auditing the Auditors

 

In recent times the flak following the recent failures in the global financial system has been largely directed at one sector i.e. the Banking industry. One group of participants have remained largely unscathed for their part in the train wreck, the Auditors.

There are now signs that the activities of this sector is coming under closer scrutiny .Auditors are in a very privileged position and their integrity is paramount.

In the US authorities brought criminal and civil charges against a former senior partner at accountancy giant KPMG over alleged insider trading.

Scott London a former senior partner at accountancy giant KPMG has agreed to plead guilty to insider trading. Mr London, 50, faces a maximum term of 20 years in prison and a maximum fine of $5m (£3.3m), according to the plea agreement.

The scandal has hit the accountancy firm's reputation. It resigned as auditor from a number of US companies including Herbalife and Sketchers soon after the claims emerged.

However it is not just about illegal activity, there are many instances of conflict of interest such as taking on consultancy work for Clients and becoming too cosy with management teams.

Back in April, John Griffith-Jones, the former boss of KPMG (and now head of the Financial Control Authority) was under pressure after it emerged that he was involved in setting the terms of an investigation into the collapse of HBOS despite the fact that KPMG were auditors to HBOS from 2001 to 2009. Recently days it was announced that the former head of HMRC Dave Hartnett was joining Deloitte who have helped large corporations avoid large tax bills.

At the lower end of the scale 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. Very often the senior management of the company being audited and the auditors can end up signing off on a “nod and a wink”.

The validity of a company's accounts reflects both the integrity of the company which is being audited and that of its auditors.

 

 

Chill winds blowing down UK High Streets

 

The acceleration in store closures this year followed a grim 2012, when a net 1,779 closed. That represents a 10-fold increase from the 174 in 2011.

 

So far this year 16 major retailers have entered administration operating 1985 shops and employing over 14,000 staff.

 

With the rise of online shopping the chains did not need as many stores as they did in the past, a trend that looks set to accelerate this year.

 

People have got less money in their pockets, employment is tighter and also we've seen a massive growth in the supermarkets in terms of non-food retail.

 

The dominant factor has been the growth of online shopping. The internet now accounts for 12% of retail sales - and is forecasted to be at least 30% by 2020.

 

Reflecting this trend the Centre for Retail Research estimate that over the next 5 years the total number of UK retail stores will fall by 22 % from the current 281,000 to 220,000.

 

Particularly vulnerable will be those retailers specialising in books, cards and stationery as well as DIY outlets.

 

Those retailers who fail to exploit all areas of multi channel marketing whilst finding themselves saddled with the burgeoning costs of maintaining retail outlets will continue to suffer and add to the casualties in the coming months.

 

Trying it on - or Red Flag warning?

  

Not so long ago the standard response from recalcitrant Debtors was “the cheque is in the post”. It traditionally bought some time as generally Suppliers met this response with a weary resignation. 

Times have moved on and the latest mantra is “its set up for next week’s computer payment run”. 

Basically the name of the game is the same, namely to achieve a payment extension effectively squeezing the Supplier’s margin. 

Obviously it is a difficult balancing act between keeping the customer happy and managing your own company’s cash-flow. 

Now more than ever it is vital to keep full control of Debtors. Late payment is becoming a major cause for concern particularly for smaller companies. Latest estimates suggest that in the UK national late payment debt is in excess of £30 billion. Data released by the electronic payment scheme BACS indicates that small firms  have to wait on average 38 days after payment is due before receiving funds. 

Whilst delays in payment can damage bottom line, the worst scenario is that neglecting to monitor a failing company could result in a total write off.