Revving up the bottom line

How do we boost the bottom line? – without doubt the most hackneyed question in business. There are 2 obvious solutions, (a) Cut operating costs and (b) Boost Revenue. If you’re the FD you’ll probably aim for the double.

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.

If Sales people are required to shake the tree and harvest the Golden Apples then it is vital that they are not only supported with a superb product but an equally impressive after sales service.

The need for effective Management

One of my early business mentors once remarked to me that there’s no such thing as a bad business merely badly run businesses. At first sight it would appear to be rather a glib statement but when you analyse the performance of many companies it becomes a self evident truth.

In many organisations the management of the company are so far removed from the day to day working that they have little or no comprehension of the workings and therefore the potential problem areas for the business.

It is a problem common to both the Private& Public sectors. Take for example the UK Government Department who paid more than £3.2m to an aid agency which has ceased operations in the Afghan capital Kabul, amid fraud allegations. Documents show officials were aware of problems in 2009 but continued to pay the German agency until April this year.

As the list of companies heading towards administration / liquidation in the UK is rapidly accelerating it is a clear illustration of the lack of effective management common to many businesses/ organisations.

Symbiotic relationships

All too often the focus on the current economic background is negative. However one of the benefits emerging from the current business climate is the value that can be placed on a mutually beneficial Customer/ Supplier relationship.

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 “pinching” 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 emerge from the current difficult situation with a renewed confidence in each other and a better based business for the long term

Don't get caught out

A combination of recent market volatility coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual ordering patterns, delays in payments etc. Very few businesses fail overnight and there are usually enough warning signals which should enable a supplier to reduce its risk

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised companies.  Make sure that when the dust eventually settles that your company emerges in a stronger position

Diversification the hardest trick to pull off

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

Beware of Greeks bearing debts

The latest meeting of EU governments over the weekend has put together yet another plan to try and avert the crisis in the Euro zone spiralling out of control. The reality is that sooner or later the outstanding debt liability of Greece will have to be substantially written off with some analysts estimating as much as 50% of the amount owed. Fortunately in the UK there is not the exposure to the Greek situation that other EU nations carry.

However as the international banking community prepares for 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 rigorously observed and any potential problem areas or customers brought quickly into line. As it becomes harder to borrow, positive cash-flow is critical 

Avoid the slippery path

When asked to review operating systems and strategic plans, I find it 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 current Greek situation – 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 together we'll get back the control