Time for housekeeping

 

The ongoing debate about the timing of higher interest rates will inevitably result in consumers reigning in their spending. Accordingly many businesses not least the leading supermarkets will face a difficult time.

Without doubt now is the time to tackle potential problem areas with some effective housekeeping.

One of the first areas for scrutiny is the level of inventory which the company is carrying. It is imperative to ensure that the best level of Stock Turn is achieved and the company and that you are not carrying any obsolete stock. Rather than face a “fire sale” it may well be prudent to lighten up now with some innovative marketing strategies.

How is the company’s cash position? With the backdrop surrounding financial institutions and Governments alike, the banks will not readily provide additional finance- it is an absolute priority to maintain positive cash-flow and this can only be achieved by keeping debtors under control.

Those organisations that fail to maintain strict controls will fail and now is the time to do everything you can to ensure your company doesn’t become one of the casualties.

Engaging the workforce

Working with companies over the past months there is a noticeable sense of demoralisation amongst many sectors of the work force.

The causes for this are readily identifiable, many people are struggling with their own domestic finances whilst at the same time the need for increased levels of performance and efficiencies at work have rarely been as intense.

It is the responsibility of management to ensure that during these times staff members are encouraged to give of their best.

Too many managers are remote from the day to day activities of their staff and appear to have the attitude that the people who report to them are lucky to have a job.

This mentality is counterproductive. Staff need motivating and incentives do not necessarily have to come solely in the form of financial rewards.

Some of the best run and therefore by definition most successful commercial entities are those where the workforce is engaged and feels part and parcel of the organisation rather than merely there to make up the numbers.

 

Trust - the overriding business requisite

With fiercely competitive trading conditions the question of trust is of paramount importance.

Operating margins are being squeezed and people are looking for ways to protect their bottom lines.

As we saw last year with the meat contamination in “Beef products” there will always be those who disregard regulations or flout the law in the belief that they will get away with it.

Consumers should have absolute confidence in what they are buying. The responsibility for that lies with the retailers, who need to be absolutely sure that what they're selling is what they think it is.

It boils down to the integrity of the supplier, no matter how many factory audits are conducted or how many QA questionnaires are completed it is essentially an issue of trust and reliability.

The same can be said of the buyer, if goods are delivered on a credit basis this should mean that the supplier has every right to expect that the agreed settlement terms are adhered to.

Any good relationship takes time and effort to build and sustain, once the question of trust is damaged it is hard, sometimes impossible to restore.

 

A benefical exercise

 

As business practices change and external factors come into play a regular review of the company’s business plan will ensure that the company stays ahead of the game.

The review if done correctly should result a realistic, objective and clinical appraisal of the business.

Following an analysis of the business plan it should be easier to communicate objectives and strategies to those funding the operation and also to the company’s employees.

The review will serve as a reference point when determining the effects of alternative courses of action on business operations.

A clear assessment of current working practices should highlight areas where the company may require outside assistance.

At the same time an analysis of the current inventory levels and receivables will provide the answer to the future growth and capital requirements of the business.

 

Hard sledging for SME's

Latest figures show that bank lending to small and medium enterprises fell by another £435 million in the second quarter of 2014.

This further underscores that although banks are willing to lend more the situation for SME’s remains difficult.

The Bank of England recently commented that lending to “small businesses remains constrained with little change in banks risk attitude”.

Having suffered the consequences of their previous reckless attitude to lending the banks remain cautious in their dealing particularly in respect of lending to small and medium size businesses.

After the spectacular failure of their previous policies, there was always likely to be an excessive over reaction on the part of lenders.

The tragedy for many small businesses is that they are being strung along whilst banks prevaricate about increasing facilities and in the meantime much damage ensues.

Now more than ever any application for funding must be accompanied with a stand-up strategy together with evidence of strict control over all elements such as cash-flow, debtors and stock turn/ inventories.

In this current climate, the banks will look to any shortcomings and or operating deficiencies as justification to turn down increased funding and or to reduce or even call in previous agreed facilities.

 

A true and fair representation?

The fall out arising from Hewlett Packard’s disastrous £7.10 billion acquisition of Autonomy gathers pace. HP is now set to sue the accounting firm Deloitte on the basis of flawed accounts for 2 years prior to the takeover.

HP claims that there was a widespread fraud which saw them suffer a £3 billion loss. In this instance the numbers are huge and allegations of criminality.

However in respect of company’s audits 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 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.

 

Cheap food who subsidises the bill?

In a market where prices are squeezed to the absolute and in order to protect margins suspect practices and questionable ethics will inevitably come to the fore.

The current economic reality will continue to underpin the demand for cheap food but in satisfying this demand there is a price to pay.

The combined effect of the recession, the growth in online retailing and the increased market share of discounters such as LIDL and ALDI has shaken the likes of Tesco, Sainsbury and Morrison’s. For supermarkets focussing on market share food prices must be kept down, at all costs. But in the case of farming it is such a long cycle and there is little account taken of retrospective costs for the producer.

Looking back 25 years ago, British people probably spent about 22% of their disposable income on food.

In 2014 the spend is roughly between 4 and 8%, so food has actually become cheaper.

The reality is that the 'bog-offs' - the buy-one-get-one-free deals are not actually sponsored by supermarkets. They are paid for by the producer who has to agree to them under tight terms and conditions.

As the margins of the big supermarkets fall from 5% to nearer 3% producers will be expected to absorb more of the pain.