Red Zebra Business Centre - Management Memos
June 2011 Making Measurably More For Your Business Since 1985!
MaxProfile
EOFY travails suggest caution in preparing for 2011- 2012

Max Williams, Principal Consultant

It is popular at present to talk about the "patchwork economy".  But the real question is, is this a patchwork economy, or a two-speed economy?

If it is a patchwork economy, we need to ask what patch we might be in, and it could be different as between one business and another.

On the other hand, if it is a two speed economy, it is much more likely that we will all be in one stream or the other.

Given the wide spread retail softness commonly, and consistently reported, it seems that we are more likely to be in the slower lane of two speed lanes!

Treasurer, Wayne Swan, hinted at this when he said in an interview with the ABC "The economic backdrop is a bit like the fiscal backdrop: it's a tale of two halves - short-term softness and medium-term strength." Which ever way you cut it, it is a 'tale of two halves'!

Looking at the 'big picture' economics is always helpful, but it's what is happening on the ground that really matters.

Here, the story is the same - 'short term softness' - but how short is the term? We have seen numerous examples of client budgets not just not met, but substantially under-shot.

Even the most vigorous of traders has seen a lot of hard work go in to just keeping up with the previous year.

What this means for prudent people must be that planning for this coming year is not to be based on the 'same old, same old' method of doing business. Next year will not be just like this year with a bit added for growth.

There may be no growth at all.

By the end of FY 2011-2012 things could be very dicey indeed if your business plan is based on the historical level of year-on-year growth - and then there is no growth.

Our advice to all our clients this year is to either:

(a)  Plan on achieving only the sales level achieved in 2010-2011, or

(b)  Zero base the sales budgets, and cut the expenses cloth to fit.

That does not mean that we plan to stall. Not at all! No, it means that we plan growth programs that can be contained in very tight expense budgets.

These tight budgets will be sustainable even if the growth does not materialise - the growth we are going to work so hard to build.

If our planning is good and the environment turns good, we will be able to 'power ahead'. If not, we will have an expense level that we can support, even in the worst outlook case.

In a nutshell: Plan for the best, and prepare for the worst!





Keep Sane

R

recent confusing signals about the economy will leave some businesses in a very difficult position by June 30, 2012! Do we have a patchwork economy, or a two speed economy? Which are we in? When you're planning for 2011 - 2012, it's probably wise to take a long, cold shower!


First, have a plan!

For many small businesses, the idea of a business plan seems academic, impractical, and a waste of time.

Businesses with a plan do better than those without! In turn, that makes writing the budget easy - it's just your plan set to numbers!

Second, look at the numbers! 

This is really important. It is also important to think about which numbers.

Don't have a fixation on maximising gross margin. Not such a bad idea, but you can overdo it. If you finished your financial year well down on sales. but up in margins, that's not good.

You didn't lose money because you controlled expenses - which is another way of saying you damaged your long term growth path

Your very high gross margins inhibited sales. Much better to trade harder, drop the margin a little and increase Gross Profit a lot! But watch out that volume really does increase! if it doesn't, something else is wrong.

Third, work out what is important for your business! 

Do you depend on big ticket items - the kind of discretionary spending that needs consumer credit to facilitate? Probably need to work on the service and support side of the business to provide a bolster against a slide in consumer demand.

Do you depend on smaller sales value items? (Generally that means consumables.) Probably better focus on items that give a 'high value in use' to strengthen your competitive edge, and support that product mix with budget lines to 'signal the savings'.

Fourth, plan your activities to maximise your strengths! 

Your advertising plan, your sales training workshops, your merchandising plans, and your buying plans all need to match your emphasis on what's important for your business.

Fifth, Control Your stocks!

And watch your stock holding like a hawk!!!

Stocks build for all kinds of reasons And it only hurts you if you have too much stock. Try to keep no more than 6 weeks stock of anything, and if you have a seasonal market, take that measure on a monthly basis. Don't stock up ahead - it's only good for suppliers, and remember to quit stock that isn't moving.

Sixth, plan for a crunch!

General consumer demand has already weakened significantly. Demand for your products and services is probably slowing. Often this is masked by some local or one-off factor.

Problem is, that the onset is gradual and insidious. Several months of performance below plan saps your cash resources, and it is very hard to build back up.

Better to not let that happen in the first place - by watching the numbers very, very, closely.

Remember, you must plan for what you can see will happen! Taking last year's figures as a guide for this year, and saying, "That'll do for our budget", is indeed a risky, risky business!




'Whistleblowing website' launched for retail sector

Whistle
Australian Internet entrepreneur Ruslan Kogan's latest publicity stunt is a take-off of Wikileaks - for people who feel aggrieved by retail experiences.

TradeLeaks.com, is described as "a whistleblowing website that will make retail and trade open and transparent," says Kogan in a statement first thought was an out of season April Fool's joke. "The site "would do to trade and commerce what Wikileaks has done to politics" Kogan proclaimed.
"TradeLeaks provides a simple way for consumers and whistle-blowers within organisations to anonymously leak information," said his statement.

"The transparency of the Internet has made consumers smarter than they have ever been. TradeLeaks further empowers consumers to make more informed choices."

"If you start to see businesses complaining about TradeLeaks, you will know that their businesses probably have some skeletons in their closets."

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