Thought for the day

What’s the difference between an inside straight and an inside trade?

One involves gambling in a game of poker, and the other involves wagering with your life.

One may net you $5,000 in a poker tournament while the other may result in you serving 5 years prison time.

A check list to drive sales

Focus on niche markets - there is an advantage in positioning your company as a market leader in a niche market.

Target a niche market that drives the greatest sales, profitability and quickest sales cycle.

This will produce sales growth with the least amount of effort. Niche market leaders generate strong sales revenue and profit growth driving up the value of their business.

Promote your products - drive increased sales growth by offering customers bespoke packages such as volume discounts, extended contracts or product bundles.

There is no merit to be gained from discount pricing on your offerings if they truly provide the value described.

Develop your brand - unique design, functionality and technology can make your products proprietary, which can increase the desirability of your products/services and the price a buyer is willing to pay. Branded products offer protection from the competition and enabling sales of products at a higher price and profitability.

Highlight your USP - even if your company are offering products that are not proprietary, it is vital that customers recognise what makes your company different to the herd.

When you do this successfully, your company becomes the first choice and achieving sales targets will not be an issue.

Jettison underperformers - the best way to dramatically lower your costs and improve profitability is to shed underperformers. Evaluate all of your products and services and delist them if they are not profitable or helping to drive sales of your other products.

Ensure that marketing is delivering a positive return on investment. Less easy is the evaluation of the sales team but in reality underperformers are a luxury no organisation can afford.

Auditing the Auditors

The majority of 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 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.

Earlier this year in the UK subprime lender Cattles has launched a multimillion-pound claim for damages against PwC, alleging “audit negligence” for failing to spot major holes in its accounts in 2006 and 2007.

Cattles said the failure resulted in it piling up £1.6bn in debts and liabilities, bringing the FTSE 250 firm to the brink of collapse and forcing it to suspend shares in 2009.

A spokesman for Cattles said, "After a thorough, independent and objective review of the merits of this claim, it is clear to us that PwC were negligent in their role as auditors. As a consequence, Cattles and its creditors suffered very significant losses."  

Meantime in the US authorities have brought criminal and civil charges against  former senior partners at accountancy giants KPMG and Deloitte Touche over alleged insider trading.

 

However it is not just about negligence or 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 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. 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. 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.

 

 

Squeezed by leverage

As a legacy of the private equity boom an increasing number of companies are now finding their activities largely targeted to satisfying their repayment obligations to their bankers. Companies are finding their growth restricted as money which is needed for new projects is swallowed up in servicing debt.

 

A case in point is Birds Eye, Europe’s largest frozen food producer. Birds Eye has had to pay about £5 million in penalty charges to win breathing space from its lenders. Total bank borrowings now stand at Euro 1.8 billion with a further Euro 1 billion owed to investors in the form of loan notes.

 

Banks that formerly were willing to take a more lenient attitude and renegotiate loans are playing by much harder rules.

 

As companies increasingly find their ability to borrow restricted, they have to revisit payment terms with their customers. It becomes a vicious circle from which very few are immune.

 

The key is to make the most of available cash resources which inevitably leads to some hard commercial decisions. Late payers are a luxury that no company can afford in this climate. Stock must be turned as efficiently as possible.

 

Those who either will not or cannot adapt to the demands of today’s business will join the growing list of casualties.

 

 

Keeping all the plates spinning

Managing a business in today’s environment is a complex affair – it has been likened to playing chess in the dark.

 

Particularly for the owners of SME’s it has never been harder to keep track of the various elements which are buffeting the business.

 

Now might be an appropriate time to run a check over those areas of the business most likely to cause problems in the coming months.

 

It is a self-evident truth that many a crisis could have been averted by timely intervention.

 

A clinical evaluation of all areas of risk and reward will identify areas of potential concern and most importantly the ways and means by which to address them.

 

The question that needs to be answered initially is – how much longer can I keep all those plates spinning?

 

Food price inflation - no let up for the foreseeable future

 

As affluent consumers in China and India demand a more Western style diet we are seeing the effects on the price of meat and other foodstuffs.

 

During the past year UK Food price inflation has seen the price for Meat rising by 5.4%, Fruit by 10.2% and Vegetables by 5.4%.

 

For 2014 the rate of food price inflation in the UK is forecast at 3.8%.

 

Food manufacturers are caught in a vice; the buying pattern for many continues to be “just in time” reflecting the need to keep inventories as low as possible.

 

However without the safeguard of a “buffer stock” they are now more than ever exposed to the harsh reality of having to “pay up” in order to secure the raw materials to keep their facilities in production.

 

At the same time suppliers will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.

 

The era of cheap food has long passed and with consumers still having to closely watch their expenditure companies will now more than ever be required to ensure they are operating at optimum efficiency.

 

The value in reviewing your business plan

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.

An analysis of the current inventory levels and receivables will provide the answer to the future growth and capital requirements of the business.