Showing posts with label operations. Show all posts
Showing posts with label operations. Show all posts

Stop employee pilferage

Posted by oink2 Wednesday, December 14, 2011 0 comments
Since losses and pilferages are inevitable in a retail and wholesale business, entrepreneurs need to have strong and effective deterrents against them. Here are some tips to minimize this annoying problem.

1. Hot sellers are your most vulnerable goods.

Items that are popular with customers are also popular with your staff. At Pilipinas Makro, we have instituted several layers of security measures as a deterrent against pilferage from within.

• Key volume inventory. Identify the items that are (1) most often pilfered, (2) fast-selling, (3) easy-to-pocket, and (4) pricey or expensive. We make it a point to count these items every day, compare the theoretical count or the computer count against the physical count. We put up a separate inventory system for each item, and we deploy roving security people to check on suspicious activities in the store.

2. Start using a perpetual inventory system

This is an ongoing record of the historical movement of each item in and out of the stockroom, plus the current balance on hand. This system can tell you the maximum and minimum limits of your stock at any time and provide you with instant reports.

• Perpetual inventory can be done in any of three ways: manually, by bookkeeping machines, or by data-processing equipment. The third is the fastest and it is capable of doing up-to-the-minute inventory checks. In Makro, we have our own system specifically developed according to our needs and requirements. It tells us such information as the current stock level of the items, the daily mean sales, and the season inventory.

Although a perpetual inventory system is relatively expensive, its usefulness can far outweigh the cost of setting it up and running it. There are local software development companies that can provide you with the necessary perpetual inventory system for your business.

3. Instill a sense of ownership among employees.

This is especially true for regulars, supervisors, and managers. At Makro, we give them shrinkage or pilferage reduction targets that need to be kept low or brought to zero level. Our experience is that if your employees have a sense of ownership, they will track down missing items themselves.

• Computers can only do so much, but coupled with inculcating honesty among staff and instituting the appropriate deterrents, they can work very well in minimizing losses and pilferages. It is therefore highly advisable to do both the manual and the computerized inventory system in a retail and wholesale business.

source: entrepreneur.com.ph
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Always short of cash?

Posted by oink2 Tuesday, December 6, 2011 1 comments
Have you ever wondered why you sometimes experience cash shortages even if your business is booming? No matter how much money your business generates, perhaps you always feel that you are always short of cash every time your suppliers are knocking on your door.
The cause of the problem may be poor accounts payable management. When managing cash flows, therefore, you should remember that timing your accounts payable payments is as crucial as collecting your accounts receivables.

You can manage your accounts payable by stretching out the payment terms as long as possible without damaging your credit standing to suppliers. There are some business owners who pay their payables too early simply because they have so much cash in the bank, but they don’t know that they lose the opportunity to earn extra interest income on their cash. On the other hand, there are entrepreneurs who pay their suppliers too late and end up being slapped with penalties and charges. It is thus important that you manage your payables to the best interest of both parties.
As a guide, you can determine your days payable outstanding by first computing your payable turnover. For example, assume that your accounts payable at the start of the month was P150,000 and that during the month, you made total merchandise purchases of P250,000. After one month of operation, you found out that the balance of your accounts payable by month’s end was P100,000. To compute for the payable turnover, divide your total purchases of P250,000 by the average accounts payable of P125,000; this will give you a ratio of 2.0x. This ratio simply tells you that you pay for your purchases two times a month. To get the number of days payable outstanding, divide 30 days by the ratio 2.0 to get the average of 15 days.
What this means is that on the average, it takes about 15 days for you to pay your suppliers. With this information on hand, you can now check how many days it takes you to sell your inventory and collect all your receivables.

Ideally, the total number of days of inventory and receivables should not exceed your days payable outstanding; this way, you would receive all cash collections just in time when you are about to pay your suppliers. In this example, let us say you can convert all your inventories into cash in 12 days. This would mean that on the 12th day, you would already have the available cash to pay your suppliers and enjoy three more days before your accounts payable becomes due. You can then take advantage of this by depositing the cash in an interest-bearing bank account.
If business is slowing down and you are finding it difficult to unload your inventory and to collect from your customers, you may consider stretching out your credit terms with suppliers. From the same example, if the number of days to convert your inventory to cash is rising to 18 days from 12 days, you may need to negotiate your credit terms with your suppliers, for instance by having them extended by at least three more days up to 18 days to protect your cash position.
Sometimes, so you will be encouraged to pay early rather than on the due date, suppliers may offer you a trade discount like, say, a 2 percent discount if you pay within 10 days for an account payable due in 30 days yet. In general, trade discounts are good because it allows you to take advantage of it to lower your purchase costs. But there are times when trade discounts are not favorable. How would you know if it is good or not? You can do this by computing the effective interest cost assuming that you are going to borrow the money to pay your account in 30 days. You then should compare this to the prevailing borrowing rate from the bank. The formula for effective interest cost is EAI = (discount / 100 percent - discount) x (365 / payment period – discount period).
Suppose the prevailing borrowing rate is 16 percent per annum and you are offered a 2 percent discount if you pay in 10 days an account that is otherwise payable in 30 days. Using the above formula, we will find that the effective annualized interest cost is 37 percent as compared to only 16 percent, so it is wise to take advantage of the discount. If you have negotiated your credit terms to 60 days, your effective interest cost would be 14.9 percent, lower than the prevailing bank rate of 16 percent. In this case, you can afford not to take the 2 percent discount because it is cheaper to stretch out your payment.

It is perfectly all right for you to control the terms of accounts payable so it is to your advantage. Perhaps, it will be helpful if you can put a monitoring system where you can sort all accounts payable that will soon be due; this way, you will know just how much cash you will need to prepare to pay your suppliers on time.

source: entrepreneur.com.ph
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Should you insure your property?

Posted by oink2 Friday, November 25, 2011 0 comments
You may need a policy to cover your building and other structures, your furniture, inventory, equipment and supplies. You may also need a policy to insure your money and securities, records of your accounts receivable, machinery and improvements in your premises.

The events causing damage to property are called “perils,” and these include lightning strikes, burglaries and vehicular accidents. There are two types of policies covering perils: a “named-perils policy” covering losses only from perils named in the policy, and an “all-risk policy” covering all perils except those specifically named. All-risk policies typically have higher premiums, and may include coverage for additional perils if necessary.

Small businessmen can secure property insurance to protect themselves as any hiccup in the cash flow or production may cause catastrophic loss to the entrepreneur due to his limited financial resources.

But how are you compensated if your property is damaged? 
Property insurance is usually categorized into the cost of replacing property at current market value or the cost of replacing the property minus depreciation. Most experts agree that replacement cost value is better: it pays you enough to replace your property at today’s prices.

Property inspection is the most important step in underwriting. Premiums are pegged in relation to exposure, as the more comprehensive the cover, the higher the premium. However, the premium varies depending on variables like your building’s construction, its exposure to hazards, its housekeeping, and the presence or absence of fire-fighting equipment. The insurance company usually will send an inspector to look at your business site to make a quotation. He can also make suggestions on how to minimize hazards to lower your premium payments.

The basic rate may also be adjusted further at the discretion of the insurer. He credits or debits based on claims history or specific loss-control measures. If the rates cannot be adjusted, he uses dividends as a way of reducing premiums.

Some insurance companies have custom-designed insurance packages for the entrepreneur who may not have all the resources to keep track of all the perils he is exposed to.

To keep costs down, you may install burglar alarms, fire extinguishers; smoke alarms, fire doors and a sprinkler system. But you should inform your insurance provider of any major changes in your business that may affect your insurance needs. Don’t get stuck in a pattern of renewing whatever coverage you had the year before. Your needs may have changed, and you could end up renewing coverage for something you no longer use, lease, or own.

source: entrepreneur.com.ph
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