Shield your business till the sun reappears

Better times are ahead but resellers must guard against pitfalls

With talk of economic recovery happening as early as next year, the sun seems finally to be burning through the cloud of gloom that has been hanging over the IT industry.

As resellers who attended the joint PKF/CRN Bringing Value to the Channel seminar last week discovered, there are still plenty of new areas with the potential to generate margin.

However, industry stalwarts maintain that there are still many pitfalls that resellers should watch out for.

Nitin Joshi, partner at PKF, said: "There are still about 10 VARs going bust each week in the UK. Resellers are faced with a number of problems, including continuing consolidation and convergence, problems with credit insurance and a lack of options to refinance.

"Everyone claims that it is going to be good news in 2004, but you can never be sure. What is needed is more education among VARs because many have not changed their business models."

Alex Tatham, vice-president of global software at Bell Microproducts Europe, advised VARs to treat all new challenges like a business opportunity.

"Dell is going to double its business in the next three years. Instead of being pessimistic, the channel can take advantage of the growth this is going to create," he said.

"My advice is to stop shifting tin. There are plenty of other things that [VARs] can do. For instance, Dell is not good at services or plugging in the kit. Customers want return on investment and it is up to the reseller to give them that."

Tatham predicted that other 'hot' areas for 2004 will include XML technology, utility computing, mobility and Linux. He also claimed that storage and security, if sold correctly, would continue to be a cash cow.

However, the panel warned that not only do VARs have to keep looking at ways to rethink their business strategy and move with the times, they have to be vigilant both inside and outside their own business.

As reported in CRN last week, fraudsters are hard at work using fake or stolen credit cards, especially in the run-up to Christmas, but there is an even greater risk.

Alan Norton, head of intelligence at Graydon, said that resellers are in the front line for a new kind of fraud.

Criminals are filing new company registration papers at Companies House, ordering hundreds of thousands of pounds worth of kit, and then disappearing, leaving the reseller out of pocket.

"Identity fraud is a fast-growing trend in the channel at the moment, with fraudsters going for high-value goods that can be sold quickly for cash," Norton said.

"This is exacerbated by a general lack of interest from the police, coupled with orders not being properly vetted by the resellers.

"They must get their own checks in place and ask a number of questions. Is the margin unusually high? Is it a residential address? Is it a first order? Has the delivery address been changed suddenly?"

Norton added that firms must also regularly check the information they have filed at Companies House, which he called nothing more than "a big filing cabinet".

"Companies House has no obligation to notify firms if there has been a change in their company information. It is up to VARs themselves to do regular checks," he said.

For those affected by fraud or a downturn in business, there are places to turn to avoid the threat of liquidation. Many resellers have had problems securing finance or credit insurance cover, or have seen revenue drop because of the business downturn of recent years.

According to Nick Tiltman, director of credit services, northern region, at Tech Data Europe, firms have been pushed into looking at different ways to secure cash.

"Banks are not lending money so readily, and they are changing the way they look at risk. The traditional way of going to banks for overdraft facilities is also changing. It is all about managing risk," he said.

One message that came out strongly at the event was that organisations are in place to help floundering VARs, and distributors are also willing to help them onto dry land.

Paula Evans, industry development manager at credit insurer Gerling NCM, said: "The channel is a key area for us and we want to encourage openness and discussion in the industry. We would like VARs to talk to us more."

Tatham added that distributors were there to help resellers through both the good times and the bad. He advised VARs to talk to their distribution partners more often to see whether problems can be solved before they became more serious.

Sue Saunders, director of The Channel Surgery, which was set up to help VARs save their business, said: "Distressed resellers should not be afraid to talk. There are organisations out there that can and want to help them through the hard times."