Jamaica's troubles are not over

Aubyn Hill, Financial Gleaner Columnist

Times are tougher in Jamaica today than the majority of people believe, and the signs are that they are going to get even more trying.

Many companies have been laying off workers and some are taking difficult dual decisions of both laying off staff and cutting the salaries of those who stay.

Owners and managers are focusing on the simple survival of their businesses and hoping economic times will get better. They simply want to survive through this time of crisis until growth and better times arrive.

Employees, even in big private-sector businesses which are seen as institutional and economic pillars in our country, are feeling the jitters which accompany the separation of their colleagues and friends.

These quiet but significant layoffs in big and small companies are causing increasing uncertainty and those still in employment are cutting their spending and thereby causing economic shrinkage.

People everywhere are stating more and more loudly that they do not have any cash and businesses are bemoaning the lack of sales and the difficulty they face in collecting their receivables.

Many government workers walk around with the fear of the employment axe over their heads, and with the hope that 'Mama P' will ward off the IMF, freeze salaries but make no job cuts, and kick the efficiency-in-government can further down the road for now.

CONTROL YOUR BURN RATE

In most any business, the area over which managers have most control is on what they spend. Even in the best of economic times, cost control is an area of keen focus.

In tough economic times it is vital to survival. In business jargon, the burn rate is that amount of cash the company needs to survive for a set period of time. The best run companies these days calculate accurately the amount of cash they will need to spend daily - Monday's spend may be greater than Thursday's - weekly, monthly and annually.

If the company's business is seasonal, expenses will vary some weeks or months from others. The burn rate will cover that raft of expenditure from salaries, rent and electricity to advertising and bearer expenses.

The burn rate has to be under the manager's microscope, constantly. He or she must decide on a regular basis what sum of money must actually be spent.

An item of expenditure listed in a static budget may or may not be spent. The dynamic current need of the organisation and its ability to afford the expenditure, are what will trigger the decision to spend.

Cash really is king especially in hard economic times.

Still, the burn rate is only one data point and for it to have relevance and significance it must be compared with something else. That other vital piece of data is the revenue for the period under consideration - daily or monthly - to match the burn rate.

The absolute requirement to run a profitable business, large or small, and to survive in perpetuity is that revenues must exceed the burn rate or costs, consistently.

The burn rate for any period is calculated to see if it is below the income for the same period.

A manager has many struggles to deal with in running any business; two of his or her most urgent and important ones are to keep down the costs of the company to what the company can actually afford, and to drive the revenue production to exceed those costs.

In these hard times in Jamaica, that cost and revenue tandem has to be the main managerial focus.

COLLECT RECEIVABLES, SELL FOR CASH

All financial institutions and many others in different economic sectors will have receivables to collect. A more driven and concerted effort will have to be made to collect cash from customers.

With limited raises and even salary cuts, not to mention lost jobs, consumers will be struggling and juggling to pay their bills. Many will have no IMF-type lender of last resort, as Jamaica does, to approach to borrow more money.

The most vigilant businesses will get paid. Customers must also understand that they are going to come under fairly unbearable pressure to repay their debts that are due because business persons and firms will need their cash.

Frivolous spending by individuals and business will have to take a seriously long holiday.

While companies go about collecting their receivables and try and sell more goods and services for cash, managers will also have to take steps to reduce the levels of inventory in order to free up cash and reduce carrying costs.

START NEW BUSINESSES

While the country and persons face severe economic challenges, there are opportunities to develop and sell new products and services.

Consider this: We all complain that Government is inefficient and some in the civil service could do with serious training in civility and how to be courteous. In this economic season when people with excellent training by good companies are being laid off from their jobs, and others with valuable government experience are facing uncomfortable uncertainty, why don't they get together and form companies, preferably limited liability firms, and take on some of these services which the Government performs so poorly?

Go out and compete with a stodgy part of the Government bureaucracy and serve the public with pizzazz and courtesy, and in the process shrink the government apparatus and let it do some other tasks that only the Government can do - hopefully better.

Trained unemployed persons must take advantage of our weak currency by creating and supplying products and services which are more and more costly to import.

If revenues are the counterbalance to the burn rate, then companies under pressure, employees who will not get raises and skilled persons who have no jobs will have to become innovative at containing their costs - the burn rate - and finding novel, legal and customer-satisfying ways to makes sales and increase their revenues and incomes.

Aubyn Hill is the CEO of Corporate Strategies Limited and was an international banker for more than 25 years. Email: writerhill@gmail.comTwitter: @HillAubynFacebook: facebook.com/ Corporate.Strategies