The 9 November 2016 will go down in history as a day that sent shock waves rippling through the world. Most South Africans went to bed expecting to see a Democratic victory in the United States the next day; they woke up to discover that Donald Trump – the Republican nominee — had been elected President.
It was one of those moments that got many of us thinking: How did the entire world – including the USA itself – manage to call the outcome of this election so wrong? How did the choices made by the people themselves manage to blindside the very electorate who made them?
It was possibly the shock more than anything else that had much of the world walking around in various states of disbelief and depression on Wednesday, with some referring to the mood as the ‘Trump Slump’. If we had known what was coming, we could have better prepared ourselves for the news.
Have you ever been hit by a ‘Trump Slump’ in your business? Its causal factors are very similar. It happens when your company hasn’t planned or anticipated a change. The most severe ‘Trump Slumps’ hit your working capital. And then your company’s ability for output wanes, you aren’t able to meet your obligations, and the real stress ensues.
So with that in mind, here are four ways that your outsourced financial director can help your working capital beat the ‘Trump Slump’:
- Pay attention to inventory lead times. The more of an inventory expert your outsourced financial director is, the better your company’s working capital will be managed. Financial intelligence expert Rick Arthur suggests that you ensure your outsourced financial director pays attention to the following:
- Factor in ordering lead time for receiving inventory
- Factor in a minimum inventory level to eliminate stock-outs.
- Know your profit margin by stock item. It’s useful for your outsourced financial director to tell you what your company’s overall profit margins are. It’s even more useful for him or her to be able to detail which stock items are producing what level of profit. Take this one step further and regularly review your stock items, Arthur recommends. Use this process to determine slow turning, low profit items – and then eliminate them.
- Give your customers a 30-day heads-up before you increase prices. Your aim in upping your prices is to increase your cash flow or profits, correct? But if your customers are blindsided (there’s that word again) by a fee increase, chances are they won’t be able to meet it immediately or may oppose it on principle. So give them sufficient warning to gear up for the impending change.
- Match significant cash outlays with similar cash inflows. This sounds like a no-brainer, but will require significant planning on the part of your outsourced financial director. And remember: cash outlays don’t just come with decisions to expand the business. There are often significant payment requirements involved with taking on new business. So sometimes the question you need to weigh up with your FD is: “do we have the cashflow to take on this new business?”
Avoiding the ‘Trump Slump’ in your working capital involves insightful planning, careful inventory management and overseeing good relationships with your debtors and creditors. If you could do with some assistance in these areas, contact The Finance Team. We will help you identify an outsourced financial director who will give your company exactly the help it requires.