Analysis Confirms the Value of BPMA Membership
The recent demise of high profile industry distributors and suppliers brought again into the spotlight the financially fragile nature of some industry players that previously may have been considered both successful and vibrant. The phrase of ‘turnover is vanity, profit is sanity’ springs to mind.
It is often the case that the failure of any reasonably sized distributor impacts upon the general industry much more than a supplier due to the majority of creditor write-offs that are suffered
by industry suppliers.
Take Dukes Global Limited for example. With around £7 million sales annually, it is fair to surmise that with industry average profit margins of roughly 30%, it should have had a budget of £2.1 million for staffing and overheads. It is almost incredulous that a business of this structure and standing could not get its numbers right, and was seemingly being badly run year-on-year. Eventually the money runs out if the losses continue.
Quite recently a well-known supplier suffered a large insolvency and it’s tempting to think that this may have little industry effect as, of course, the majority of losses suffered should be by non-industry players. However, one very important secondary issue that almost always manifests itself, when either a supplier or a distributor fails, is that this is likely to (often unfairly) affect others. Credit analysts react with a downgrading of an overall industry credit rating.
Having the strongest credit rating and credit limit possible is increasingly important. The stronger your credit rating is in the first place then the better you are positioned to combat any overall industry downgrade. With this in mind, the BPMA commissioned its credit management partner AccountAssyst, to provide analysis on its membership credit strength, in comparison to non-members’credit ratings. The results were revealing.
- BPMA members have a superior credit score of 51.24 out of 100 compared to 34.20 out of 100 for non-members.
- At £38,511, the average BPMA member’s credit limit is morethan double that of non-members, coming in at just £17,567.
- On average, BPMA members have almost two and a half times greater asset value than non-members -£628,204 as against £274,319.
It could be said that over the longer term, it pays to be a member of the BPMA. Membership certainly can only raise the credibility and potential strength of any reputable and serious industry organisation, but do all these positive trends in favour of BPMA membership extend to both distributors and suppliers? Let’s break down the data further.
DISTRIBUTOR MEMBERS IN COMPARISON TO NON-MEMBERS
- BPMA distributor members have an average credit score of 49.50 out of 100, as opposed to only 34.08 out of 100 for non-member distributors.
- The BPMA distributor membership average credit limit comes in at £14,493, while non-member distributors average some £2,132 lower at£12,361.
This suggests that more creditworthy distributors, empowered to pass credit lines on to sizeable end-users, instead of pro-forma, are better placed to deal with future repeat orders. Price alone is one thing, but being enabled to offer credit to corporate end-users is an added benefit.
The difference in net assets between BPMA members at£217,992 and non-members’ £152,226 may perhaps be regarded as minimal, in so much as it’s only £65,000 or so in monetary terms, but this still represents almost a major strength difference between the two. Which distributor doesn’t want the satisfaction to knowing that their business was worth around 50% more than their competitor’s, especially if there is a future exit strategy planned?
SUPPLIER MEMBERS IN COMPARISON TO NON-MEMBERS
BPMA supplier members have an average credit score of 53.57 out of 100 as opposed to 34.73 out of 100 for non-member suppliers. The average BPMA member is more than half way towards the perfect credit score of 100,while the average non-member is a third of the way there. With an average credit limit of £66,024 for supplier members, compared to £31,474 for
non-member suppliers, a BPMA supplier member can expect to receive double the amount of credit. This could mean BPMA supplier members have the capacity to out-perform non-member competitors. A further benefit is the advantage of being able to more easily obtain finance for new machinery costs for example.
BPMA supplier members have an average net asset value of £1,117,922. This illustrates that members businesses maybe twice as strong as non-member suppliers whose worth is £577,698. Accrued asset values are a sign of both strength and profits. Profits are a sign of success, thus indicating that BPMA supplier members are potentially twice as successful as their non-member peers.
One general conclusion for consideration is that there is an inevitability that the average asset value of suppliers when compared to distributors ought to be higher. A supplier often needs to invest in manufacturing machinery and premises, so will provide a big swing in this area. Realistically, if a distributor accrues assets then this is only likely to be either in cash held in the bank or if the business is a little bigger,perhaps in the ownership of a building.
In summary, there’s a well-known saying that there is strength in numbers. Being part of the BPMA benefits each member in many more ways than first thought. It is more than simply being part of a support organisation for the badge, it is an essential part of building a better business. In short, in the cut throat world of financial comparison, it pays to be a BPMA member.
Mike Collins is director of Account Assyst