online savings accounts tips 2008-2010

online savings accounts tips 2008 2010

Roundtable: Working Capital in the Face of a Financial Crisis

At the Working Capital Management Forum 2008, held in London on October 23-24 at the height of the financial turmoil, SSON convened a roundtable debate to discuss the impact of the crisis on working capital practices – and on organizations in general. Hosted by online editor Jamie Liddell and attended by speakers and delegates to the conference, the debate was lively, wide-ranging and forthright, both painting a gloomy picture for many sectors and offering some suggestions for ways companies can limit at least some of the damage.

Attending were:

Simon Graham
Collection Sales
Atradius

Annie Guerard
former Finance Director
Diesel

Gavin Jones
VP, Treasury
Ahold Finance Group

Stephen North
Senior Procurement Manager
Royal Mail

Stuart Reynolds
Project Manager
Sainsburys

Brian Shanahan
Project Director
REL

SSON: Will the credit crunch and consequent recession lead to a fundamental rethinking of how to manage working capital – or is it more a question of doing the same things better?

Brian Shanahan: I’ve got some very strong views on that. There is an element, certainly, where some very simple things just need to be done well, and that was always the case, and that’s not changed. What’s changed is the urgency. Look at the classic case: “if it’s not on the first seven priorities of a business, it doesn’t get done”. You’re going to find that for a lot of businesses, working capital may always have been an issue to some extent, but it’s never been a priority; therefore nothing’s ever been done about it. That’s going to change. Why? Because margin pressures will continually increase; if you look at anybody who’s in the public sector, capital investment is going to become very difficult; for everyone in the commercial sector the idea that “I’ll just phone up the bank and get more money” has virtually stopped at the moment; anyone who’s got banking covenants that are in any way linked to asset valuations is going to be worrying himself sick right now, because December 31st is going to be the next time the covenants are going to get measured for most people. So we are seeing already in the marketplace people scrambling like lemmings looking for cash anyway they can.

But what it is going to do is refocus those businesses that did not have working capital as a priority over the last four or five years because of cheap money, to come back and say “we need to go and look at those simple, fundamental processes, those things that are intuitively right to do, and make sure we string it all together and actually do it better than we have done before”. We’re not just talking about supply chain and, specifically, purchasing, but also the bit about “where am I sourcing from? What are the lead times? What’s my investment in that working process that I’m now inventing?” And also on the customer side – because although there have been great improvements, not only in the UK but across all of Europe, in customer collections, it’s getting tougher out there. It really is getting tougher. And we’re going to see things getting worse before they get better.

Stephen North: What do you think the future is for some of the smaller businesses that we all deal with?

Annie Guerard: They will go down. I think Christmas is going to be a bloodbath. My experience is in retail; there are some business models that are based on cheap credit and because credit is going to be at a premium, those businesses – unless they change their business model – will not survive, because now the banks will have to rethink the way they operate. For example, a furniture company that only sells at sale time every four months, offering credit lines like “buy now, pay in 2010” will vanish because that’s not a business model that works – not that it was never working before, but money was cheap…

Brian Shanahan: A company like this is actually a financing business more than a retailer, because if you walk in there you can’t pick something up and say “I’ll have that today” – it’s all six to eight weeks. They’re make-to-order; they do so many things that are absolutely spot on, but actually they’re a financing business. It’s finance arbitrage.

Annie Guerard: We need to go back to basics; every company needs to find the right basic model where debtors should be on average, say, 45 days, and you can cope with suppliers if they’re between brackets – you have to have brackets as opposed to one guideline of  KPIs. As people develop their business model, they need to develop their cashflow model – as in “this is what we need to do to survive” – and have a buffer. Now that takes finance people, not just an entrepreneur. I think this is raising a different type of finance animal to work in cooperation with the entrepreneurs.

Brian Shanahan: It’s requiring people who have a much more holistic knowledge of business than just the functional aspects.

Simon Graham: I was going to say with regards to the recapitalisation of the banks, the UK government have stipulated that they want the banks to make it easier and revert back to the lending policies of two or three years ago. Do you think that’s actually going to materialise?

Gavin Jones: Certainly not before the year-end. When you speak with the banks – and I do on a daily basis – they are so focused on their balance sheets for their year-end position, I can’t see – whatever pressure from either the UK or other government bodies across Europe, or in the US – that they’re going to want to kickstart their lending, particularly back to, say, the 2007 levels as has been suggested here in the UK. They’re just not going to want to do it. And you generally find that at quarter-end – or even in some cases at month-end – that banks don’t want to lend unless they have to over their reporting periods.

Brian Shanahan: The key thing for year-end this time is their lending ratios. Most of them are going to bust the hell out of them all, so they’re very heavily retrenching, basically making emergency repairs to their balance sheets. When you look at the drop in share prices, this is largely being driven by hedge funds at the moment who are desperately trying to make margin calls and that’s why they’re selling everything. Everything. Just for short-term cash. It’s panic.

Gavin Jones: Certainly when I speak to banks they look at the statements that have been made about returning lending to 2007 levels and they’re saying “it’s going to take time for us to do that; it’s not going to be an overnight thing. Just because we’ve got money from the government, doesn’t necessarily free up balance sheets.” It’s also a mindset now within banks; some of them have been badly burned – largely because of some of their own poor risk-management decisions – and it’s almost a complete swing to the other way now, becoming totally conservative.

Stephen North: Do you think that across all organisations against this background that there will be more pressure put on procurement within each organisation to make savings and to help the organisation work more efficiently – almost becoming commercial problem-solvers?

Brian Shanahan: My own opinion? I think the knee-jerk reaction is “what can I do to cut costs?” whether it be through procurement, headcount; that is always the knee-jerk reaction of today’s generation of business leaders, and unfortunately in the particular environment we’re in right now that is really just putting a small dent in the car.

Annie Guerard: And it’s not the solution.

Brian Shanahan: It’s not the solution at all.