Keep an eye out for early warning signals

 

Very few companies explode like a super-nova the warning signs are usually visible for some time ahead.

The following is a basic check list which should help to determine whether the problems are of a temporary nature or have more serious implications for the future of the company:

The most important element in any business is maintaining a healthy cash flow. It is imperative that a strict control is maintained on all outstanding invoiced amounts.

The value of an efficient credit control system cannot be over emphasised.

Do not focus on generating sales with little margin in the belief that over time things will improve. Being the “cheapest supplier” will not provide an automatic route to more satisfactory profits in the long term. It is often better to keep your powder dry.

If you are constantly in danger of breaching your credit arrangements with the banks or suppliers this is a clear indication that the company is not trading satisfactorily.

As conditions deteriorate more and more time is spent focussing on the problems and not enough on to how to position the business for the future.

Particularly for owners of SME’s it is not easy to take the necessary remedial actions and very often this is where an outsider can be of assistance in repositioning the business before it is too late.

 

Masters of the long game

 

The impact of the French Revolution? - “too early to say.”This was the response from Zhou Enlai to questions in the early 1970s about the popular revolt in France almost two centuries earlier – buttress China’s reputation as a far-thinking, patient civilization.

The former premier’s answer has become a frequently deployed cliché, used as evidence of the sage Chinese ability to think long-term – in contrast to impatient westerners.

Fast forward to today and the ability of the Chinese to play the long-game has never been in more evidence.

In a single decade from 2001 up to 2010 Chinese trade with the rest of the world increased from£325 billion to £1.9 trillion.

Since 2005 China has invested £320 billion across the globe with 75% of this in developing countries.

There is an insatiable demand for raw materials to fuel the economic growth in China and commodities such as Oil, Minerals, Precious Metals and Fuel are the prizes for these investments.

The ongoing crisis in Western economies has provided ample opportunity for China to assert its economic strength and China has now usurped the US as the largest foreign investor in Germany.

Chinese companies are investing in such diverse areas as the French Wine industry or making acquisitions in the US/European Food Industry and this will undoubtedly continue as China accelerates its move into Western markets.

China says it wants to back major UK infrastructure projects and has recently signed £14bn in trade deals.

The projects the state-owned China Development Bank (CDB) wants to invest in include High Speed 2 and the next generation of nuclear power stations.

A major deal between BP and China National Offshore Oil Corporation is worth about $20bn (£11.8bn).

At the same time China has continued to extend its influence in Africa. In the latest development China has agreed to give Nigeria a $1.1bn (£700m) low-interest loan to build much-needed infrastructure.

The money will help build roads, airport terminals in four cities, and a light-rail line for Nigeria's capital.

China will continue to invest heavily in Africa at it relies on it for oil and other natural resources.

 

To the heart of the matter

One of the tests of the English legal system is “what would the man on the Clapham omnibus think?”

This is the reaction to any problem or situation that could be expected from a reasonably educated and intelligent but non-specialist person.

In the current economic climate many companies would do well to ask “what does the man standing in the queue at the Clapham Supermarket checkout think?”

The problem is (as we see all too regularly) many people running businesses (or for that matter senior politicians) are too removed from the realities of life to effectively understand the economic difficulties faced by the ordinary consumer.

It is a very easy exercise, a few minutes spent in the supermarket or on a garage forecourt will give a true insight into the problems and frustrations currently felt by the ordinary consumer.

Talk of interest rises in the UK is gathering momentum but there is a real and present danger that even modest increases in interest rates could result in a major surge in families with dangerous debt levels - especially among worse-off households.

Since 2007 the number of households spending at least 50% of their income on repayments has dropped by 270,000 to 600,000 because of falling interest rates.

But rises in interest rates over the next four years could see Britain return to higher levels of household debt than before the financial crisis, which was sparked by US homeowners being unable to service their mortgage debt.

 

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.

As George Santayana commented “those who cannot remember the past are condemned to repeat it”.

Gilding the lily

There is no doubt that 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.

The classic example of this being the gross mismanagement and ineptitude at the Co-op Bank. 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.

If you keep them happy, you keep them loyal

 

External factors over which little control can be exerted continue to buffet all business sectors.

However, every organisation does have a potentially winning weapon in their armoury namely the opportunity to offer excellent customer service.

In these difficult times everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as trading conditions become tougher and business harder to win the level of service offered by many suppliers is falling very short of acceptable standards.

From the frustrations of automated answering with the intensely irritating muzak accompaniment, to the failure to meet agreed delivery schedules customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet.

Customer service is not a difficult act to pull off – in reality all that is required is to give the customer the feeling that their business is important and they are valued, not just “one of a number” or even worse a nuisance.

Those companies that focus on customer service will build an increasingly stronger business.

 

Low cost access to the UK market

 

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 operating costs such as rent, communications, staffing are daunting, particularly in a start up situation where income streams are lagging far behind these up front out goings.

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.