Caution is the watchword

 

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


Operating in 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.

 

There is little merit in vying for “prestige” business if it does not allow for an acceptable commercial return.

 
At the same time 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.

 

Finding the philosopher’s stone

 

In trying to improve profitability, there are 2 obvious strategies, cut operating costs whilst increasing 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”.



This is where a difficult balancing act comes into play, in cutting costs the net result is very often a reduced and demoralised workforce.

 

If those involved in the support work aren’t performing then results inevitably suffer. It is a question of striking the correct balance.

 

Avoid damaging supplier relationships

 

The most important component in any business relationship is the question of trust.  

 

The ultimate demonstration of trust and good faith is when a supplier delivers goods to a customer on credit terms.

  

It therefore is incumbent on the buyer that they acknowledge this act of trust and observe the agreed payment terms. 

 

With the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to  pall.

 

Once a supplier feels that their buyer is taking undue advantage the relationship is damaged sometimes irreparably.  

 

For any relationship to be sustained there has to be mutual benefit.

 

When a buyer gains a reputation for persistently crossing the line the merit in maintaining the account is called into question.

 

Gilding the lily

In the current economic environment some companies are camouflaging their poor performance with some suspect off-balance sheet shenanigans other dubious activities.

 

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

 

There have been graphic examples of this recently, the gross mismanagement and ineptitude at the Co-op Bank and the manner in which Tescos was being run. This lack of commercial expertise has been especially true in the case of non-executive directors.

 

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 a company is bucking the trend in these difficult times it may well be that they are implementing a winning formula.

 

However history tells us that it is prudent to implement some rigorous analysis in order to avoid any unpleasant surprises.

 

Symbiotic relationships offer the path to growth

When evaluating the respective role of the supplier/consumer the focus often accentuates the adversarial nature of the relationship i.e. who is getting the better of the deal?

 

However one of the benefits that can be derived from the current business climate is the value that can be gained by the customer/supplier in having a mutual understanding of each other roles and obligations.

 

As increasing numbers of business operate on a just in time inventory basis it is vital that a good understanding exists between supplier and consumer.

 

In as much as a supplier will be prepared to go the extra mile to ensure that his buyer receives his goods on time and in good order so it behoves a buyer to ensure that he pays as required and is not abusing the goodwill of his supplier by delaying payments in order to seek some extra period of credit.

 

If both parties work together in a professional and commercial manner then it will strengthen the relationship and both will benefit from a renewed confidence in each other and a better based business for the long term.

 

The Greek crisis is a perfect metaphor for our times.

 

A customer develops a pattern of late payments but far from being called to order the supplier fearful of alienating the customer allows this to become the norm.

When the inevitable tipping point is reached there is no alternative to continue to support the errant buyer or risk realise a loss.

As it is with the Greek situation and the realisation that concessions will have to be offered by the international community in order to keep the plates spinning rather that witness the typical Greek folk custom of plate smashing.

 

Accompanying this need to reach out to the fledgling Greek government there is a growing perception that the problem is just being kicked down the road.

However as the international banking community continues to ponder the consequences of another serious blow to its capital structure the UK banking community will not be immune. At the very least there will be a renewed focus on exposure and this will impact on their willingness to lend.

Now more than ever businesses must demonstrate that they have full control over all aspects of their operations. Reporting procedures must be strictly observed and any potential problem areas or customers brought quickly into line. As it becomes harder to borrow, positive cash-flow is critical.

 

What's in a name?

 

 

Following the financial crisis of 2008 there was much talk of a collective reigning in and return to the principles of sound business.


However memories are short and it is never long before the blurring starts again and risky practices again become more and more the norm.

 

There is now a concerted move afoot to rehabilitate the image of leverage.

 

This was the mechanism which more than any other precipitated the disaster in the financial system.

 

Companies no longer speak of leveraged deals but are now taking on “sponsor finance”.

 

This re-branding has in-built danger as witnessed previously; complacency has resulted in the demise of numerous organisations.

 

In the words of Machiavelli “Whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever shall be, animated by the same passions, and thus the necessarily have the same results.”