Sarah Ludford, business growth advisor, GC Business Growth Hub
The CBI, in its report last week, said that the ratio of stock to expected sales on businesses’ balance sheets are rising. There are terms like ‘shoring up supplies’ and ‘ensuring stock continuation’ being used in the media.
But the starker term is ‘stockpiling’.
Stockpiling is an emotive term. It sparks memories of war preparations and survivalist tactics.
In the case of Brexit stockpiling, the fear is that the goods we are used to having easy access to may be delayed at the UK/EU boarders, attract higher import tariffs or simply, they will be more expensive due to currency fluctuations.
But lets just take a step back, away from the politic melee and scaremongering of the media. What is the true meaning of stockpiling for a business?
We are just trying to secure the supply to our customers, ensure that we have what we need to continue production, ensure that we don’t fall foul of any price hikes that may happen as a result of shortages. In summary, by storing, we are ensuring that we have what we need to trade sustainably.
But there are some downsides to increasing our stock holding and there are questions that we need to risk assess. When we need to liquidate this excess stock, is it going to be a simple process? Is there a risk that the stock will devalue whilst its sat in our stores?
By wrapping up our cashflow in physical stock, we are running the risk that we are leaving our business cash starved. So, we need to adjust our cash projections to compensate before we commit to increasing stock levels.
And will that stock survive in good shape? Not only may it have a physical shelf life, but it might have a market shelf life too. If we hold stock for too long, do we run the risk of the stock being obsolete by the time we get to use it? In some industries, product modifications happen all the time, leaving some components without a value. So, when the stock devalues, the company balance sheet potentially devalues.
We’ve also been reading about the race for warehouse space and the increased cost of logistics to move the stock. It is all basic economics – supply and demand. Some businesses are having to pay increase warehousing rates and it all, eventually, squeezes the bottom line profits.
But can we afford not to? Are there other ways to address the issue?
If your clients are in the UK, they will be fully appreciative of the effects of Brexit. This is the time to go and speak to them, run through your strategic concerns and let them air their worries? We’re not saying go and cry on their shoulder and expect them to overlook the fact that your supply might dry up! We’re saying, go and reassure them. The chances are, your business is a precious part of their overall success. They want you to succeed. Because if you’re succeeding, the chances are you’re getting more efficient, and effective and more reliable. Plan with your customers how you’re going to succeed together. Sharing your plans will help to breed confidence, particularly against their competitors.
And if your customers are in the EU, have you reassured them that all is being planned for and you understand the effect tariffs are going to have? Have you calculated what export tariffs may be on
your goods? Have you re-costed your goods supply and does your proposition still stack up, commercially?
And we’re not just considering those huge businesses with ‘just in time’ supply chains with thousands of components, this may affect even the smallest business.
So questions to ask. Can my cashflow support extra stock? Do I need to get some finance to support extra stock? If I stockpile, can I liquidate the stock efficiently and will it still be needed?
Are there other businesses that will look to liquidate their stock and you can use their disposal to your commercial advantage?
Now may be the time to speak to your advisor about raising the funds for the stock if there is going to be a negative effect on the cash flow. It’s not too late to plan effectively for Brexit, but don’t leave it too late. It will become an expensive delay!