Hard sledging for SME’s

 

Latest official insolvency statistics from The Insolvency Service for Quarter 4, 2013 show that both company and personal insolvencies were down in 2013 with 7% fewer company liquidations and 4.6% fewer personal insolvencies. Corporate liquidations are at the lowest level since Q1 2008 and Company Voluntary Arrangements are at the lowest since Q4 2008.

Despite this encouraging development obtaining additional funding remains al a major concern especially for SME’s.

With the marked reluctance of the Banks to lend, it becomes imperative that all businesses focus on their areas of exposure – rigorous policing of the Debtors book must be a priority and Stocks must be kept at a minimum.

More companies will try and improve their cash-flow by dragging their feet with payments and trying to put more of the burden of carrying stock onto their suppliers.

Those that adopt a passive approach to these issues will find themselves increasingly vulnerable and heading down a slippery slope.

 

The workshop of the world

For a few decades in the 19th century British manufactured goods dominated world trade.

Most mass manufactured items were produced more efficiently and competitively in Britain than elsewhere.

At the height of its imperial prowess Britain also had the commercial, financial and political power to edge out rivals at home and abroad.

In some industries, most notably textiles, massive changes took place in technology and in the organisation of production causing dramatic productivity growth. This in turn brought a steep decline in prices

For other sectors more modest organisational improvements coupled with greater specialisation and the employment of cheap labour brought similar, though less dramatic, results.

An unprecedented range and variety of products thus came within the grasp of a new mass market both within Britain and overseas.

Fast forward just over 100 years and all of the above factors can be applied to the Chinese economy.

But just as with Britain after an unparalleled boom there is a period of pausing.

New export orders are contracting, suggesting external demand for China's exporters remains weak.

The true picture is that not only is China's export sector slowing down, but its manufacturing sector is also slowing down. That means the trade surplus is almost gone.

This week Beijing reported the biggest slowdown in investment for more than a decade and the slowest retail sales expansion for nine years resulting in a general revision by analysts in first quarter growth to 7.2%

After a decade of spectacular growth the Dragon is now pausing to catch its breath.

 

More black holes than outer space

Following the precedent set by RBS earlier this year the Co-op Bank have announced plans to raise £400 million though a new share issue following the discovery of additional costs related to past misconduct and poor documentation.

The scale of the bad decisions during that period means that some problems are still just emerging.

There have been repeated assurances that the banks were putting their houses in order but there is a growing feeling that many of the problems have been swept under the carpet rather than acknowledged and dealt with.

The recent fessing up by RBS and the Co-op Bank adds credence to this view.

It is hard to believe that we have seen the end of issues with the banks when we consider their recent history of financial mismanagement and sheer scale of incompetence.

There is no doubt that the internal controls of these institutions appear seriously deficient but there is a question mark concerning the obvious lack of professionalism on behalf of the independent auditors.

Turnover vanity, Profit sanity, Cash-flow reality

 

More than ever, all businesses operating in today’s climate need to constantly scrutinise their commercial exposure.

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.

However as business conditions remain difficult we are witnessing a growing trend for companies to squeeze suppliers in various ways.

This can take the form of a decision to arbitrarily extend payment terms, decide not to take up previously agreed deliveries or introduce respective price discounts.

From a suppliers perspective this erosion of operating margin means that in some instances the best business decision was to leave it to your competitors.

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.

 

 

Supermarket price wars – winners and losers

 

Following the announcement by the supermarket group Morrison’s of a £1 billion pounds worth of price cuts over the next 3 years there has been much media speculation as to the reaction from both its customers and its competitors.

Tesco has commented that it will respond with a vigorous pricing strategy which will result in abandoning its operating profit margin of 5.2% it is expected that Sainsbury will follow suit on pricing although it had a lower margin of around 3.25%.

With the big four supermarket groups controlling around 75% of the UK consumers will be anticipating considerable savings in their weekly shop.

But these price reductions will not merely be achieved by the supermarkets trimming their margins. The savings will have to be made on all elements of the supply chain.

Food manufacturers are in an unenviable position; 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 any spike in demand which sees them forced to 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 overhead monster is a greedy animal

 The UK offers a very attractive market for companies wishing to export their products.

Counter party risk is identifiable and can be successfully managed.

However one barrier may be the perception of high operating costs.

There is no doubt that to commission and run a UK operation can prove a costly commitment.

The lists of outgoings such as rent, communications, staffing costs are daunting, particularly in a start up situation where income streams are lagging far behind these costs.

This is where we can assist you, as an established independent company, we have experience of representing overseas organisations in marketing products into the UK.

In addition to opening up new markets for your products and services we can also police the all important areas of logistics and payment of your invoices.

An introduction to our activities can be seen on our web site www.glbconsulting.co.uk or alternatively why not contact me at gordon.blackburn1@btinternet.com to arrange a meeting to discuss how we assist you in entering the UK market.

 

Shark infested waters – don’t fall overboard

 

In the present economic climate all businesses and organisations must remain alert to the potential for fraud.

Small and medium businesses are particular targets of messages that appear to be emails from banks, the National Crime Agency said recently.

Emails containing attachments that look like details of suspicious transactions are actually malicious software that encrypts user's computer allowing fraudsters to harvest sensitive information and access bank accounts.

Entrepreneurial owners of SME’s are a prime target for fraud as overseeing finances doesn’t always come naturally to them. If a founder is focusing mainly on the product or service being sold, and only minimally on administration, it leaves a business vulnerable to fraud.

In smaller organisations fraud can be carried out in a variety of forms, over invoicing, theft of stock, supplier’s kickbacks, fictitious expenses etc.

Larger organisations by definition provide scope for fraud on a more substantial basis.

It is essential to have systems in place to monitor all the company’s finances in a clear and concise format. After all it is never comfortable experience to find that someone is holding your wallet.

All businesses be they independent or large corporations are vulnerable.

It is an undeniable fact that there will always be people trying a variety of ways to “scam” your organisation; it is a problem that will not go away so vigilance should remain the order of the day.