Issue 223 - Want credit? Know assets.

A man walks into a bank. He walks up to the teller and says, "I'd like to take out student loans for my kids." The teller looks at the man and says, "How many kids do you have?" The man looks at the teller blankly for a moment and then replies, "Probably four to six of them, but if you hold on a moment I'll ask the sitter to count..."

Today we look at what this story and many food businesses have in common.

How would you react? Sounds ridiculous, doesn't it? Unfortunately this is an all too common scenario when food distributors and processors are faced with credit applications. In the hustle and bustle to get work done all too frequently maintaining an accurate track of your assets. At the end of the day (week, month?) someone hands you a count sheet and you hope it's accurate. Let's look at why this happens and what you could do to stop it.

Our recent survey put Credit and Finance high on your list of concerns. This reminded me that, over the years, a number of food business owners have approached me looking for inventory(asset) tracking. One common reason was to appease banks, lenders, and investors who were not satisfied with a "Hold on a moment while I count it." response to the question, "Where's the money at?"

The problem of course is that food business owners have had to compromise so many times they become used to the limitation. Since they "couldn't" maintain inventory it became "alright" not to maintain inventory. And it's only when we look at it from a new angle (like the story in today's thinking inside the box) that we realize how ridiculous a statement like "it's close enough" really is.

Let's look at one example I bumped into a few weeks ago. A distributor who maintains store inventory on occasion has to give credit for product to his customers. Some time in the past (probably because of a restriction in his system) he started reducing his current invoices by the weight of the goods he was returning. For instance if there was a damaged piece of ham and 5 pounds was unsaleable, he would knock 5 pounds off the weight of the ham he was delivering today.

Let's think about that for a moment:

First: He has ruined his inventory. He just "left" five pounds in stock that should have been delivered.
Second: He is probably losing money because (in general) food prices go up over time and he's giving last week's credit at this week's prices.
Third: Because these returns aren't being recorded separately he has no record of the returns being made. No way to look for a pattern and resolve what might be a costly trend.

What does this mean? Aside from the potential profit loss, it means that his system cannot give him an accurate inventory, and if he wants to know what he has, he'll have to go count it. Is this his fault? Absolutely not, it's a point where in the past he "settled" for an incomplete solution to solve a pressing need and had to find a workaround.

Take a moment to look at your company, at how many things have you allowed to become "acceptable" because at some point in the past someone told you that "it couldn't be done." If you are settling for ignorance about your company's largest physical asset start working to correct the problem now. Whether you're looking for credit to fund growth, recover from a disaster, acquire competition or float more stock the bank will want to see how you manage your assets, and you don't want to be the one telling them "hold on while I count it."

In the next few weeks we will look at Inventory Management and hoe you can materially effect your bottom line.

Below is a quick look at our Internet Usage Survey results. The percentages represent the number of people who took the survey and answered that they did use the online resource.

Results of Internet Usage Survey