Wednesday, 27 February 2019

Hayne Royal Commission

I was reading Dean Robinson's newsletter recently. Dean has been a friend and associate of mine for quite a number of years now. In his regular newsletter he was commenting on how the royal commission will be impacting his market, that of small and medium family business, seeing he is The Family Business Transformer. (You can sign up for Dean's Newsletter here)

So each of his points got me thinking ...

He mentioned that borrowing will be more difficult to the point of a possible credit crunch. Banks will be making companies jump through previously unheard of hoops to get access to money. Well, for some businesses, that may not actually matter.

Because interest rates have been so low for so long, combined with the fact we have a number of generations of managers who have never been through a recession, many businesses are carrying way more inventory than they should or could. I heard a story the other day of a $12 mil revenue business carrying $4 mil of inventory. Right there, is a truck load of cash that would not have to be borrowed, if it could be released back into the business.


Strangely enough a well implemented ERP system, operating in a disciplined business can help you release that cash back into your business. It is an old school concept, and one that I feel will make a strong comeback soon, that inventory has a cost. Many executives, particularly those who have not managed in hard times, do not believe that inventory has a cost. This belief is often based purely on the fact there is no line item on their P&L called inventory carrying cost. During my 20 plus years of consulting, I have heard many business owners say, "inventory is cheap".

Well that is simply not right. The cost in reality can be between 12 and 20 percent of the value of the inventory being held. While there is no P&L line item, the cost is no less real, as it hides in each and every other line item on that P&L. At the very least the opportunity cost of the money and how else it could be deployed is an expense that is not being considered. So if you are finding it more difficult to get access to borrowings from your lender of choice - perhaps an investment in a inventory reduction and maintenance project and a redeployment of those bank fees you will be charged could be extremely beneficial.

Another two key points he made were; 1) underperforming loans will be pulled and poor financial performance will be penalised and 2) Owners need to know their operational numbers - daily.

Again a well implemented ERP can help here. A well crafted dashboard will be able to provide you will real time access to your key operational numbers, thereby allowing you to make better and more timely decisions. By making these correct decisions on a daily basis helps build your resiliency and thereby avoid being classified as poor performing.


The one thing I have learnt over my many years of consulting is, there is never a perfect time to undertake these projects. If this is your year for growth and/or your system and associated labyrinth of spreadsheets that you rely on to make your decisions is holding you back? There is no better time than now to set yourself up for future growth.

True independent advice can provide:
  • An honest point of view
  • A proven methodology
  • Knowledge of what questions to ask  and an ability to put the vendor under pressure to prove their statements of capability
  • Support to executives so their risk is minimised
If you or anyone you know is looking:
  • To improve the way their business operates 
  • To improve the way they leverage their current system
  • To replace their current system
give me a call for a confidential discussion on the best way to achieve this, because many of the most expensive mistakes are made early in the process.

Until next month ...

Sincerely,

David.


© David Ogilvie

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