from less obsolescence and also, hopefully, by increased sales. But how am I going to explain all this to a prospective buyer? Even if he fully understands it, he will pretend that he doesn’t. It gives him a trump card to substantially decrease the price for the company.
Are there any positives? Obsolescence will go down. Due to reduction of inventory, introduction of new products will not mandate the write-off of stocks of old ones. How much is it? I flip through Bob’s budget. He budgeted $18 million for finished goods obsolescence. Has he factored in the new scenario, when the inventories are reduced? I fish out his last year’s performance. No, thank God. Last year it was $18 million, he just copied it from one year to another.
If the inventories are cut by about 50%, obsolescence will be cut even more. Especially as it is much easier to monitor the phasing-in of new products when half of the stocks are held in one place rather than scattered all over the country.
Okay, what does it translate to? Bob will be ahead by the amount he will not have to write-off, by about one million dollars a month; $12 million let’s say. The more I succeed to postpone the sale, the better off we are. If I can postpone it to the end of the year. . . . But that’s impossible.
When is it likely that the buyers’ examiners will start to check us with magnifying glasses? Even if I stand on my head and play every trick I know to procrastinate, it is going to happen in two or three months. Damn it, right at the worst possible time. Exactly when the inventories have been reduced, but the impact of less obsolescence is still in its infancy.
What the hell am I going to do? It’s one thing to try to sell a company that is almost breaking even. It’s a totally different story to try to sell a company that is losing over $10 million on sales of $180 million. To tell Bob to revert back to the old distribution system? No way. Besides, it won’t help. Bob and Stacey are absolutely right, if we don’t find a way to make the companies very profitable before they exchange hands, we are all doomed. Me, them and the companies. Everything will go down the drain.
We must find a way to increase sales immediately. It’s the only way out. And we cannot do it in the proper way. Pete cannot have the more advanced printing presses that he so desperately needs. Bob cannot afford the time to systematically improve his engineering department. We must move much faster. Damn these Wall Street sharks for putting this devastating pressure on us. Why can’t they leave us alone?
They return from lunch.
“Alex,” Don starts, “during lunch we discussed the impact Bob’s new distribution system will have on his bottom line.”
“Pretty devastating,” I say in a casual voice.
“So, you noticed it as well,” Don says, somewhat disappointed.
“What did you expect, that he wouldn’t?” Bob dismisses him, and to me he says, “What should I do? Ignore it, or inflate my central stocks—you know that with my excess capacity I can easily do it.”
I think about it for a minute. Inflating the central stocks, not like the regional stocks, will not cause any damage to Bob’s ability to quickly respond to the shops’ needs. Introduction of new products will be affected, but not by much. On the other hand, he won’t suffer from the bad effects that stem from the distortion in the way we currently evaluate inventories on our books. The temptation is big.
“No, Bob. Don’t do it,” I decide.
“I thought that would be your response. You never wanted to take the easy way, to play the numbers game. But, I thought I should ask.”
“Thank you. Okay, Stacey,” I say, “your turn.”
“Surprisingly, when you look at the general picture, it’s not much different,” she starts. “I, too, have revealed a lot of excess capacity in the past year—it’s going through our ears; we have even more than Bob. Our problem, as you may expect, is
Are there any positives? Obsolescence will go down. Due to reduction of inventory, introduction of new products will not mandate the write-off of stocks of old ones. How much is it? I flip through Bob’s budget. He budgeted $18 million for finished goods obsolescence. Has he factored in the new scenario, when the inventories are reduced? I fish out his last year’s performance. No, thank God. Last year it was $18 million, he just copied it from one year to another.
If the inventories are cut by about 50%, obsolescence will be cut even more. Especially as it is much easier to monitor the phasing-in of new products when half of the stocks are held in one place rather than scattered all over the country.
Okay, what does it translate to? Bob will be ahead by the amount he will not have to write-off, by about one million dollars a month; $12 million let’s say. The more I succeed to postpone the sale, the better off we are. If I can postpone it to the end of the year. . . . But that’s impossible.
When is it likely that the buyers’ examiners will start to check us with magnifying glasses? Even if I stand on my head and play every trick I know to procrastinate, it is going to happen in two or three months. Damn it, right at the worst possible time. Exactly when the inventories have been reduced, but the impact of less obsolescence is still in its infancy.
What the hell am I going to do? It’s one thing to try to sell a company that is almost breaking even. It’s a totally different story to try to sell a company that is losing over $10 million on sales of $180 million. To tell Bob to revert back to the old distribution system? No way. Besides, it won’t help. Bob and Stacey are absolutely right, if we don’t find a way to make the companies very profitable before they exchange hands, we are all doomed. Me, them and the companies. Everything will go down the drain.
We must find a way to increase sales immediately. It’s the only way out. And we cannot do it in the proper way. Pete cannot have the more advanced printing presses that he so desperately needs. Bob cannot afford the time to systematically improve his engineering department. We must move much faster. Damn these Wall Street sharks for putting this devastating pressure on us. Why can’t they leave us alone?
They return from lunch.
“Alex,” Don starts, “during lunch we discussed the impact Bob’s new distribution system will have on his bottom line.”
“Pretty devastating,” I say in a casual voice.
“So, you noticed it as well,” Don says, somewhat disappointed.
“What did you expect, that he wouldn’t?” Bob dismisses him, and to me he says, “What should I do? Ignore it, or inflate my central stocks—you know that with my excess capacity I can easily do it.”
I think about it for a minute. Inflating the central stocks, not like the regional stocks, will not cause any damage to Bob’s ability to quickly respond to the shops’ needs. Introduction of new products will be affected, but not by much. On the other hand, he won’t suffer from the bad effects that stem from the distortion in the way we currently evaluate inventories on our books. The temptation is big.
“No, Bob. Don’t do it,” I decide.
“I thought that would be your response. You never wanted to take the easy way, to play the numbers game. But, I thought I should ask.”
“Thank you. Okay, Stacey,” I say, “your turn.”
“Surprisingly, when you look at the general picture, it’s not much different,” she starts. “I, too, have revealed a lot of excess capacity in the past year—it’s going through our ears; we have even more than Bob. Our problem, as you may expect, is
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