Business Success Tips
It's difficult for smaller companies to compete with the management capacity of large chain stores or franchise operations. However, small companies can act more quickly than big companies. So, if you know what to monitor and where to get information, your business can be as successful as any.
Consider the following ideas for saving time and money and making your business more profitable.
1. To sell right, you have to buy right. If you're going to offer your customers prices that are competitive, you must first buy competitively. Attend wholesale auctions, buy factory direct where possible, and establish a buying co-op with other small but non-competing businesses.
2. Treat your customers right and they'll keep coming back. Customer service pays off in higher profits. Your entire staff should be aware that it is the customer who provides the money to meet payroll and pay for future salary increases.
3. Learn from other small businesspeople. Develop a circle of friends in similar businesses around the country. Discuss ideas and business problems with them on a regular basis. You'll find out what others are doing to manage problems with inventory, receivables, personnel, fixed assets, computers, etc.
4. Try new ideas. Be innovative and unconventional when necessary. The fact that something isn't currently being done in your industry or in your area shouldn't keep you from trying something different if it will give you a better product or better service for your customers.
5. Ask your employees. Companies that ask employees for suggestions get good results. Your employees are directly involved with both your customers and your product and are in a good position to suggest improvements.
6. Make costs everyone's concern. Motivate your employees to be concerned about net profit. They should be as concerned with controlling costs as with generating sales.
To encourage participation, consider implementing a bonus program based on a percentage of costs saved.
7. Develop tight controls over billing and collections. To speed up cash flow, reduce the time between shipping your product and sending an invoice. Consider semimonthly instead of monthly billing, and send second notices more quickly.
8. Collect past-due receivables. Almost every business has past-due receivables. Phone the people who owe you the most money, and try to resolve the problem on the spot. If you can't collect the total immediately, try to negotiate a payment schedule, or schedule a follow-up call.
9. Watch your payables. Don't be one of the many businesses that overpay vendors due to sloppy accounts payable procedures. Go over these rules with your accounts payable clerk:
- Don't pay vendors twice (or more) for the same invoice.
- Don't pay for goods that you return to the vendor; check the invoice to be sure an adjustment has been made.
- Keep track of credit memo allowances you receive and subtract them from the next invoice.
- Be sure to take discounts for early payment when they apply.
- Don't pay for charges that are incorrectly included on the invoice, such as shipping charges the vendor agreed to pay.
10. Keep payroll costs under control. Payroll costs are a major item in most businesses. Perhaps a more efficient plant layout or work schedule would result in reduced labor needs. Consider the use of temporary employees and subcontractors if your business is subject to seasonal variations.
Payroll-related costs are fertile areas for cost reduction. Fringe benefits can easily amount to 25 to 50% of direct payroll. Review employee classifications for workers' compensation insurance. Improperly classified workers can be costing you significant premiums. Review group insurance programs. Solicit bids for the programs every three years. Consider higher deductibles as a means to lower premiums.
11. Watch those numbers. Use your financial statements to give you important management information. Compare inventory turnover (cost of sales divided by average inventory) year by year. If turnover drops, consider it a warning sign and investigate further.
Compare your gross profit margin (sales less cost of products sold) from year to year. A decreasing profit margin may be a danger sign that should be checked as soon as it is spotted.
If you sell a number of different products, determine their individual gross profit margins and their mix. Give particular attention to low-margin products to see if it's still worthwhile to carry them.
12. Use prior financial statements as a guide to prepare budgets and long-range projections. Actual results should be compared to these projections to highlight areas needing attention before major problems develop.
13. Use your advisors wisely. Keep your accountant, banker, insurance agent, and lawyer informed about your business. These professionals consult regularly with many other businesses and can help you avoid pitfalls in making business decisions.
There are other business management strategies in addition to those mentioned here. If you would like assistance in identifying ways to improve profits in your business, contact our office.
Mary Currie & Associates, Inc
Accountants and Consultants
PO Box 7806
3308 Sunset Ave
Rocky Mount, NC 27804
Fax: (252) 937-2373
Member of NC Association of CPAs #23907