Back to Basics: Small Changes Add Up
by Daniel R. Siburg and Howard W. Fisher
Every business owner or manager knows that economic conditions have changed the ways companies are managing operations and doing business with their customers. Businesses are controlling operational costs, while customers are spending less.
Although economic environments have changed, and will continue changing, owners and managers need to operate their businesses with an eye to the future. Many have returned to running their companies at a basic level. Managers are rethinking the operational aspects of their businesses that may have been overlooked and examining customer relationships that may have been taken for granted while the economy was booming.
Every Company Needs to Keep Selling and Marketing
The economy will turn around at some point in the future, so now is the time to stabilize and grow your company’s market share and customer base. Ensure that long-time customers are happy and that they know your company is stable and open for doing business. This is also a great time to find new customers, as current market conditions may have caused competitors to pay less attention to certain sales channels and markets.
Under current market conditions, it is easy for a business to stop trying to acquire new customers or neglect selling to their established customer base. This is an incorrect course of action in a slow economy. There is no better time than now for a company to keep selling and marketing its products and services. Now is the time to try different marketing strategies and methods, by spending dollars on highly focused marketing methods that reach new target markets or the company’s already established market area.
A company should try to avoid price increases while at the same time avoiding the urge to discount products and services. Discounting products and services will require the company to sell more units to reach the same level of revenue, and even more units to reach the same level of profitability. In addition, discounting products and services when customers are buying less makes the prospect of raising prices in the future even more difficult.
Reevaluate Cost of Goods Sold
There is no better time than now to reevaluate your company’s cost of goods sold by:
- getting suppliers to requote materials
- reviewing production and warehouse-equipment maintenance contracts
- ensuring that only the equipment in service is being covered by contracts
- buying smaller quantities of material and supplies
- maintaining smaller investments in inventory
Control Freight Costs
Freight in and freight out are major cost components that need to be controlled by:
- charging for freight on small customer orders
- having key vendors bundle shipments from their warehouse to your facility
- using freight forwarding services for international shipments
- shipping international freight in full containers to lower costs
- avoiding air freight shipments whenever possible
- reviewing volume discounts with all freight and delivery services
Conduct an Operating Expense Review
Businesses often overlook changing their operating expenses to match their current business level. Too often, companies address their operating expenses only in reaction to long-term declines or erosions that can no longer be avoided. Even in good economic times, you need to have quarterly operating expense reviews by line item, vendor, and other service providers.
Simple services to review are:
Incoming telephone service. Make sure that your business needs the level of incoming lines it now has, and that you get the best long-distance rates available, now that long-distance rates have fallen considerably.
Internet service provider. Research new Internet providers in your area. Often you can bundle your Internet and phone service, resulting in improved Internet access speeds, better long-distance rates, and reduced phone-line charges.
Mobile phone service. Make sure that the company is paying only for cell phones that are in use, and review service plans. Offer employees a per diem rate to use their own cell phones.
Insurance policies. Ensure coverage is tailored to current needs of the business. Levels of coverage should be reviewed for liability limits, inventory amounts, automobile coverage, key-person life insurance, and health insurance.
Conserve on Fixed Expenses
Companies should conserve on fixed expenses. Although the expenses will never go away, it is often easy to reduce the monthly costs by doing simple things, such as:
- installing energy-saving light bulbs
- turning off lights, computers, printers, and photocopy machines at night and on weekends
- getting programmable thermostats for office areas that will adjust the temperature automatically to match the hours of operation
- installing timers on electric water heaters to heat water only during business hours.
Assess In-house versus Outsourcing
Review the cost structures related to services currently being outsourced and services now being performed in-house. Perhaps changes in business levels mean that it will be more cost effective to bring some outsourced services in-house and/or to outsource services now handled by staff.
Evaluate the option of using part-time employees or independent contractors to allow for a more variable cost structure. Computer services and support and Web site design are examples of functions that it may be more cost effective to outsource.
Ask employees, vendors, and customers for their ideas on changes they believe will help save the company money or improve customer service without increasing costs.
As you implement these various small steps, you will see that they can add up to big savings that will help improve your company’s profitability now and well into the future. It is amazing how these little things will engage everyone to ensure that the company is profitable.
Daniel R. Siburg, a CPA and CVA (certified valuation analyst), has been a company president and CFO, and is director of The Fisher Company. He presents media-industry operating statistics and commentary at many publishing meetings. Howard W. Fisher, a co-founder and publisher of two successful trade-book publishing companies, is managing director of The Fisher Company, which provides mergers and acquisitions advisory services and strategic consulting. For more information, call 520/547-2460 or visit thefishercompany.com.