One wonders about the American media and the pressure they put the company under, without knowing all the facts. Could it be that the level of attention differs for international companies than it does for domestic companies? Makes one wonder ….

The article covered the facts that small business owners are currently waiting longer and longer to sell their businesses. The time a business is on the market has grown substantially recently to over recent months and buyers of businesses are currently spending up to 1/3 longer to find a suitable business.

In my view there are many reasons for this, some of which are:

·         Banks have tightened their lending criteria. With nearly 70% of all business purchases requiring funding and over 80% of purchases having difficulty finding adequate or appropriate funding, there is no surprise a business is staying on the market longer.

·         Interest rates have been increasing almost every month. Albeit this has slowed and economists are predicting a stand still in this area for a short period, rates are higher now than they were last year. This increase in rates will be placing increasing pressure on the businesses for sale to show ever increasing rates of return, otherwise the buyers will look elsewhere.

·         There is an increasing supply of businesses on the market. One only has to look in the paper to see the increasing number of Receiver Sales to know the number of businesses for sale has increased.

·         There is a silent seismic demographic change occurring. A high percentage of the baby boomer age group are business owners. As they continue to grow older, the number of wanting to sell out is growing adding to a continual growth in supply of businesses available.

·         The GFC may have caused many of the baby boomer owners to delay or withdraw from the market, increasing the risk of pent up supply or the risk of oversupply down the track.

Dennis Laundy from Account firm, “William Buck” was quoted in the article as saying, “A track record of good, solid financial performance is the main factor that will increase the value and attractiveness of your business”.

This quote is quiet right; however the bit he didn’t say was, HOW do you get that track record of good, solid financial performance?

If selling your business within the next 5 years is on your radar – then NOW is the time to take some action to improve your chances against the ever increasing competition for a smaller pool of buyers. Buyers of a business will often ask for the last four or five years Profit & Loss Statements and Balance Sheets. By acting now to improve your business process and productivity will provide you with the track record they will be looking for in 5 years into the future. By improving your performance now and for the next 4 to 5 years will increase that ever important EBIT multiple you will be able to ask in that competitive environment.

So how do you do this? Here are my 5 quick take aways that will help you start on that improvement path:

1.       Ensure the systems within your business have you operating in a lean, no waste and value adding way.

2.       Lower the amount of capital required to generate the net profit of your business.

3.       Re-examine your product and customer profitability.

4.       Re-establish good business discipline in the areas of inventory and control.

5.       Fully understand what your cost to serve an order is.

While these five steps may seem simple in design they are complex to successfully implement execute and most importantly make stick for the long term. Call me to discuss how you might get this to occur in your business.

I cant help wondering where our economy is going. Alan Kohler’s newsletter had an interesting graph which started me wondering …… the size of Australia’s Budget deficit.

Its not a good look in this context is it. I know I hear that it is a smaller percentage of GDP than other countries ….. but the fact remains we still have to make this up in surplus …. someday somehow. Don’t we?

Add to this picture the fact that a report today spoke about Victoria’s desalination plant. Thiess has apparently agreed to pay workers up to $200,000 for carpenters with a $700 a week living away from home allowance to work on the project. Combine this with the wages mine companies are paying people and one wonders what effect this will have on inflation?

Combine this with a small piece of news I heard from a friend the other day where a friend of his had made $70,000 in 1 week from a real estate transaction. That’s right he sold a property one week after it settled for $70K more than he paid. Again I am no real estate guru - but that smells like a bubble to me?

If you have any thoughts on this I’d like to hear them.

I am constantly told by friends and acquaintances that “such and such” company really could do with my help - and in many cases they are correct, the business would certainly benefit from applying the principals I use to turn businesses around. However, there is no benefit to either the business owner or myself, if the business owner is using the ostrich method of management. They clearly need to understand the brutal facts of their business before my techniques will deliver results for them.

So if you know of any ostriches who have lifted their head out of the sand recently and now understand the facts of their business - tell them to call me.

CNBC’s article this morning seemed to focus on finding fault with Toyota because the dealers journalists had chosen to call for comment, didnt have an answer to how the fault would be fixed. Or that, “telephone messages left with three Toyota Spokespersons were not immediately returned.” Ohhhh PLEASE !!!! Notice the immediately in that comment, like the journalist is the most important thing a spokesperson from Toyota has to deal with at this point in solving a difficulty.

The Australian Financial Review wasn’t much better, with their columnist from “The Economist”. Comments such, “Although recalls are a routine matter for car makers, taking cars off the market is not” and “Toyota is making a habit of advertising the defects of its latest models”clearly demonstrates the journalist involved (unnamed of course) has no idea about what makes this company tick. Surely the fact that a company advertises rather than hides the defects in their product is a good thing - it helps the consumer make their choice on facts that are public and not hidden from view. That’s a good thing - yes?? Again, as I said the other day, the stopping of the production line is simply an extension of something that happens at Toyota on a daily basis and is fundamental to them gaining the quality reputation they have developed. Its natural for them to do this and the fact they have done this should be seen by the public as something to reinforce their trust in the product. The fact that their competitors don’t ….. (and that may include being open about defects) is open to interpretation. I know where my money is going next time I’m buying a vehicle.

Toyota dealers seem to be handling the obviously large number of calls from customers concerned about the safety of their vehicle and unfortunately at this precise moment they don’t have an answer or solution to the issue - YET.? Exposing yet another part of Toyota’s DNA - that of not moving forward until they have the solution. Not a patch to get them out of trouble but THE solution to the issue. Customers can breath easily in the knowledge that the solution will be the right one.

Ford and GM may in the short term get a few extra sales due to this issue - however they don’t seem to get the long term view Toyota takes. This problem could actually be the launching pad for a stronger Toyota in the near future. My prediction is that those customers that move away from owning a Toyota and back to a Ford or General Motors vehicle will be back in a flash after they have had an opportunity to truly compare the competitive product and then realise how far ahead the Toyota product really is. And once these customers have come back - Toyota will have them for ever.

Beware the wounded !!!

• Ensuring you reduce you debtors
• Cutting costs, usually with a particular focus on cutting staff costs.

Yes of course these are important, but I am not sure I agree this the only two things a manage can do. yes controlling your debtors is important. Yes you need to reduce unnecessary spending. However, I cannot believe these people continue to over look the costs of poor inventory management (and the resulting inventory turns you achieve or more importantly don’t achieve) and the costs of holding inventory or that they overlook the impact of non-value adding activities that occur within each business. When looking for cost savings it seems that everyone immediately runs to the most obvious cost - that is the physical bodies standing in front of their eyes without really using their eyes and looking to find where the waste really lives.
I have found Mark Graban’s blog and podcasts (found at www.leanpodcast.org) to be a great resource for seeing how other people have successfully used Lean techniques to improve their operations. There are some great ideas how to identify and reduce waste at this blog. It is by using these techniques that a manager can surgically remove the unnecessary costs in a business rather than using the chainsaw method used by most companies. I know i’d rather a doctor use a scaple on me rather than a chainsaw and likewise a business.

As times get tougher, its time to become the surgeon not the tree fella.

(For our international readers - fella is an aussie term for person and also treefella is someone who uses chainsaws to cut down trees)

What particularly took my eye in this advertisement was the following text (This is an add for a Lean Specialist whose role would be to implement Lean tools and techniques and their number one Essential Criteria was…), “Able to achieve set target in 5S and Lean Audits“.

Sadly I often see organisations simply cherry picking the tools they WANT to implement so they are able to pass some arbitrary audit, and not the philosophy as a whole. And then they wonder why they don’t get the results they wanted/were promised. Companies like this, even when they do use the tools - tend not to implement the tools correctly. Take 5S as an example. This tool is often the number one tool implemented by consultants/companies. However the 5S program rarely? includes the standardise and sustain. It is usually the sort, stabilise (and this is often questionable) and shine. In other-words, its nothing more than a clean up and a shine. In my opinion the key ingredients to the success of this tool (and this is dependent upon it being used as an ingredient of the whole philosophy and not in isolation) is the standardise work and the sustain. That is kaizen - the continuous improvement of these standards.

How we get through to these companies remains a mystery to me, if you have any ideas how to achieve it - let me know.

This article also provided advice on how to survive the looming (if it isn’t already here) economic crisis, particularly aimed at small business owners. I find it interesting to see what advice these financial gurus provide their readership. The usual and predictable suggestion of managing your cash flow better by watching your debtors, cut unnecessary spending and be aggressive with your marketing and pricing in an attempt to increase your market share. No where in this article is any suggestions as to what costs to reduce.

There was one suggestion of reducing the size of the business back to a manageable size thereby reducing your debt and working capital required. The trouble I see here is the business has entrenched habits and practices that have been developed to support the level of debt and capital employed - there is severe risk in quickly cutting back. In most cases the first major expense businesses look at cutting is staff. The risk here is the high chance you will lose important knowledge which is much more costly to replace when you realise you don’t have the capability you thought you did have. There is no advice in these articles about how to make better use of capital save cursory suggestions to lower inventory. As Homer Simpson says “Doh”, the key is in how and what inventory. The key is in having the business systems in place to ensure that inventory doesn’t get out of control and unresponsive to demand in the first place.

Those companies that have implemented these business systems prior to these hard times, that is were disciplined enough to be prudent in the good times will be well placed now that times are getting harder. The lowering of the oil price and other economic indicators is clearly signalling that NOW is the time (if you haven’t already) to establish these business systems and get ready to profit form the more difficult trading conditions. It is actually possible with your competitors battling the same conditions without such systems in place that now has the possibility of actually being the best of times for you, by profiting from their difficulties.

The key finding for me from that survey is that over 60% of respondents were going to take actions that didn’t involve looking at their business processes. You will recall in my last post I spoke about the profit equation, this is an ideal place to start, not at reducing silly things like cutting back on the company biscuits, the quality of coffee you provide your staff or on not replacing light bulbs when they need to be replaced or other such cost cutting schemes you see put in place when times are difficult. Have a look at the businesses day to day habits. A habit of turning off a light when it isn’t needed, so the wasted costs are not there in the first place. Silly example I grant you, however I see company after company cut back on the silliest things. They would be better off applying the 80/20 rule and examine those habits that will have the biggest impact. In tough times you need quick wins to give you breathing space and (in my opinion) this does not mean cutting staff. This is most cases is where your best cost cutting ideas will come from.

There haven’t been many comments left, please feel free to do so. We request that you register only to keep the spammers away. When we first set this blog up it was flooded with spammers so we implement the register requirement to stop them. So there is no other reason for the registration apart from that. So please contribute.Anyway I sincerely hope everyone has a great Christmas, I hope it is a joyful time for you and that you spend meaningful time with your respective families.

Is it just me or is the fact that on one hand there is squandering of Billions of dollars (and lets not forget these executives are being paid an absolute fortune to oversee such destruction of value) and on the other, there is one very key word being used…………..”Profit”. Toyota is not immune to the current economic events but they are still making a profit.

The difference in “thinking” could not be more distinctive.? The US companies are what I classify as being a very reasonable companies (and in my line of work I see so much of this). That is they have many “Reasons” why company behaviour or conditions are the way they are. That is they have more reasons why things can’t happen thereby being reasonable, rather than (as Jim Collins called in his book, “Good to Great”) facing the brutal Facts, getting off one’s backside and doing something about it.

In my view the brutal facts are that they have believed their own Bulls**t for far too long.? While not having read the documents they provided to congress and only relying on press reports, the offering they made to congress provided no evidence of anything different happening. Ohhh? did I hear them say the environmentally friendly vehicles would be their saviour?? (They did arrive in them after all - as a result of their traditional thinking i.e. taking the corporate jet, getting them in further trouble).? All I can see is a bucket load of money going to keep them alive for a few more months and no cultural change happening at all. Its the arrogance in their thinking that arriving in a corporate jet was suitable behaviour that goes to the core of the issue.

The solution lies in a different way of thinking, something I don’t feel they are capable of, otherwise being this close to oblivion would have made them start on that path - surely????.

One of the simple but profound themes that came clear for me during my trip to Japan was the difference in the philosophy between the US and Japanese formula for profit.

The traditional formula used both in the US and here in Australia is; (Cost + Profit) = Price

The Japanese formula is; (Price - Cost) = Profit

A very subtle difference however the effect of its application is profound. Its application isn’t an easy matter either - because it requires a cultural change, a change in the way the WHOLE organisation thinks. The US car makers have attempted to mimic the tools used by Toyota - but they missed the fundamental tool, the way they think.? Use of tools in isolation from the “System” will never work - ask any builder, if an apprentice tradesman uses the best tool; does this mean he will build the best house???? Of course not.

So to summarise my ramblings; the US car makers are doomed to fail unless there is a significant change at the top. Because we all know the fish stinks from the head down; likewise the company’s leadership need to demonstrate exactly that - some actual leadership and stop listening to the underlings pis*ing in their pocket.

As a shareholder or owner of a business, which position? would you rather your company be in; Toyota’s where you cutting the “actual profit” your making or the US car makers where your fighting for someone to come rescue you from oblivion? I am no rocket scientist - but that equation seems easy to me.