Archive: Jan 2013
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Blog Author – Kevin McNeil, Associate Director, SouthWestfd
Just imagine if you could reduce your stocks by, say 25%; that might just be equivalent to the overdraft amount you have been requesting from your bank and it comes at 0% interest!
Businesses, quite rightly, are concerned about collecting cash from their customers as quickly as possible and paying their suppliers no faster than the agreed terms. However the third main element of working capital, namely what you hold in stock, is often not as visible and so not treated as such a priority. We all need stock to sell on to customers, or feed production, or provide services – basically to run our businesses, but how much and of what? Stock doesn’t just use up cash resources, it also takes up physical space in the business and too much leads to operating inefficiency. Having the wrong stock means that you may have too much stock overall or, of equal concern, you have too little of the stock you really do need!
- The first thing is to know how much stock you hold. If data from your IT system is reliable then great, if not then undertake a stock-take to ascertain precisely your stock levels.
- Next categorise the stock into different types, whatever is appropriate for your business. This may be raw materials, WIP and finished goods, or perhaps product ranges A, B and C.
- Within the categories, perhaps starting with the larger value items, ascertain which are items that are used regularly (current), used occasionally (slow moving), unlikely to ever use (obsolete) and damaged or faulty (scrap).
- You will now start to get a clearer picture of the stock you hold. You might be surprised at how much you classify as non-current stock. Whatever you find you are likely to need to address two issues;
- Reducing your non-current stock. This will involve a combination of strategies which may include sales/discounts to customers, cancelling purchase orders, or selling on or scrapping obsolete items.
- Reviewing your future purchasing strategy. Consider supplier lead times, order quantities, price breaks, stock usage and how you might react to, or anticipate, changes in demand. It may not make good business to take a bulk buying discount that means you have stock on your shelf for the next two years.
Remember stock is your cash; you want it to be working for the benefit of your business.
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Growth Fund opens for business
Plymouth University and the Western Morning News have secured £3.9M of funding for regional businesses from the Government’s Regional Growth Fund. The £3.9M will create the investment pot of the Plymouth University & Western Morning News Growth Fund 2 (PWGF2).
The Fund is now open for business.
The Fund is about Creating Jobs
Above all, PWGF2 is about creating jobs and this therefore forms a major part of the criteria we will use to appraise applications.
This new Fund will be a substantial extension to the successful PWGF1, which made 20 awards at an average of around £46,000, creating 71 jobs, with at least another 15 jobs profiled to be created before March 2013.
PWGF2 will operate in much the same way and will enable small and medium-sized businesses who can credibly demonstrate how investment will lead to rapid job creation, to get hold of the investment they need.
Size of Grants and Timescales
The funding will be made available to around 75 businesses in Cornwall, Somerset and Devon (including Plymouth and Torbay), in the form of grants of between £25,000 and £150,000. The money is designed to enable business growth and the creation of new employment, through the delivery of a specific project. The business’ project is expected to take no longer than 12 months from start to finish. All of the Fund’s money must be spent by 31st March 2015.
Note that the Fund is being operated under the de minimis aid regulation. What this means is that if you have received public money before (or publicly-funded support that has a cash value) which was also provided under the de minimis aid regulation, the total (ie, including the amount you are asking for from PWGF2) must not exceed 200,000 Euros (about £160,000 at this point in time) in a rolling three year period (i.e. including the time of your proposed project). As part of your application, you will be required to make a formal declaration to the effect that the total of public funding you have received does not exceed this threshold. If you are unsure as to whether other public support you received was offered under the de minimis regulation, you must contact the organisation who provided that support and seek formal, written clarification as to whether it was or was not.
Who can apply and what can the money be used for?
Almost all industry sectors can apply, although, as with many schemes of this nature, primary agricultural production businesses are not eligible. The Fund is only available to businesses who are technically defined as a Small or Medium-sized Enterprise (SME) and who are / will be based in Cornwall, Somerset and Devon (including Plymouth and Torbay).
The funding will be available to pay for a range of things from purchasing capital equipment and specialist software, and improving business premises, to recruiting skilled employees who have the potential to transform a business – such as software developers or engineers. It cannot be used to fund working capital or speculative property development.
Whilst, technically, the Fund will provide 100% of a project’s estimated costs, this would be very rare indeed. More typically, businesses will be expected to provide match funding covering as much of the project’s costs as they are reasonably able to, from their own resources and / or those of third parties such as banks or investors. Part of our calculation of value for money, will reflect the level of match funding provided by a business where it is in the position to do this. And, at both EOI and full application stage, businesses will be required to state what other sources of funding have been investigated – and the outcome of this investigation.
Applying To PWGF2
Applications will be appraised by a panel of experienced people from the investment and wider business communities, and funding will be allocated to pay for professional business advisors to work with applicants, helping to hone their bids.
Applicant businesses will need to go through the following process:
- Submit an Expression of Interest (EOI) (ensuring that, as you complete the online form, you read the accompanying guidance notes);
- This EOI will then be reviewed by the Programme Team, who will assess both your technical eligibility and, based on substantial experience assessing over 250 EOIs for PWGF1, your realistic chances of success in what will be a competitive process. Based on this review, you will either be invited to proceed to full application or advised that your EOI has been rejected (although note that this would not prevent you from trying again, if you are able to address concerns raised by the Programme Team);
- If invited to full application, you will then be put in touch with a Proposal Development Advisor – a professional business advisor who will provide up to two days of dedicated support, to help you hone your full application, but who will also challenge you where they see evident weaknesses in your investment proposal;
- Once your full application is complete, you will then submit this form to the Programme team, along with your current business plan, three year cashflow forecasts, financial statements (independently prepared) and any mandatory consents, permissions or licences related to your application (eg, planning permission);
- This full application will then be appraised by the private sector Investment Appraisal Panel, who will make recommendations to the Programme’s Steering Group on whether to award a grant or not; and, the final step
- Recommendations and your application form will be passed to the Steering Group, who will be the final decision makers.
End-to-end, the process could take as little as 10 weeks, although a reasonable planning assumption would be three to four months from the point that you submit your EOI to the point that you receive, if successful, the offer of grant.
The scheme is now open to receive EOIs from businesses. The first grants are likely to be made in April of this year, and bids will be appraised on a rolling basis until April 2014, when the final awards will be made.
PWGF is also a key component of GAIN, the Growth Acceleration and Investment Network set up by Plymouth University, Plymouth City Council and the Tamar Science Park to drive business growth and job creation across the South West.
Please keep in touch with this site to find out more details about the application process and to see the type of things that are eligible for funding; and of course, our media partner, the Western Morning News, will be giving the business community regular updates.
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Blogger – Andrew Northmore, Associate Director
Before you sign on the dotted line or hand over your hard earned cash, take the time to calculate the OEE (Overall Equipment Effectiveness) of your existing kit.
You may not need to add capacity at this time! It may be more cost effective to make better use of the facilities you currently own.
What is OEE?
OEE is a measurement (usually in percentage format) of the amount of time a piece of equipment (or a production line or an entire factory) produces good, sellable product compared to the total amount of time the equipment is theoretically available (usually 24 hours per day for 365 days a year).
OEE is governed by the cumulative impact of three factors – Availability (percentage of total time that a piece of equipment is available for production), Performance (percentage of available production time that the equipment is producing product at its designed speed – this measures inefficient scheduling and downtime) and Quality (percent of total parts produced that are sellable). The OEE percentage is derived by multiplying the ratios for the three factors mentioned above e.g. 70% availability X 80% performance X 90% good parts = 50% OEE.
A low OEE percentage could be due to any number of factors e.g. working less than 24/7, not working through breaks, poor scheduling, inefficient changeovers, quality issues, machine reliability, running out of parts or materials and more. All of which, will affect your bottom line and cause “profit and cash evaporation”!
As you strive towards world class performance in your enterprise, the OEE measure can make an excellent benchmarking tool. Display the measure where your employees can see it – it makes a good motivational technique, leads to a better understanding of equipment utilisation and drives improved performance.
Make the OEE calculation a mandatory item on your Capital Expenditure Proposal checklist!
While we are on the subject of checklists, here are some other things to tick off before you make your decision.
- Does this fit with my Strategic Business Plan and my Resource Requirements Plan?
- Has the Capital Expenditure Proposal been authorised correctly by all stakeholders?
- How many quotes have we obtained? Are we getting the best value (not the same as lowest price)
- How financially secure is my supplier?
- Has the equipment been designed for fast changeovers?
- Do we have a project team and do we have the right people on the project team to cover financial analysis, training and recruitment, facilities, health and safety, environmental considerations, quality, validations, operations etc?
- What are the risks? Changes in customer demand and buying patterns, market shifts, competitor activity and vendor financial security – very important if you are making stage payments or payment with order!
- Are there alternatives?
- Financial analysis – Payback, Internal Rate of Return, Impact on Key Financial ratios – Return On Net Assets, Asset Utilisation etc.
- Funding method – lease, loan or cash?
- And for those who understand these things – has the equipment been designed for 6 Sigma levels of quality and has it been designed for easy TPM (Total Productive Maintenance)?
Protect your profits and protect your cash – you’ve worked hard for it!