Tuesday 18th December 2007
How to improve your year-end numbers Research from consultancy firm REL suggests that public companies improve their financial performance at year-end through a number of well-established ‘games’. However, the improvements are unsustainable and apart from distracting executives from more important issues, the games have some unpleasant side effects.
Here is an overview of the games companies play, according to the study, and the problems they might cause.
Front-loading sales
Deep discounting encourages customers to purchase products or services ahead of their needs so that sales can be booked into the current year. Unfortunately, it also results in lower margins for the seller and depressed demand in the months to come.
Chasing incoming payments
Collection activity is intensified in an effort to boost reported turnover, putting a strain on customer relationships.
Slowing down outgoing payments
There’s only so many times you can tell your supplier the cheque is in the post, but this is still an old favourite at this time of year. Variations include delaying purchases and goods receipts.
Running at full capacity
Making more products reduces working capital and boosts earnings in the short term, but it is simply another way of tying up cash, this time inside stock that will take months to shift.
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