What is a healthy comany? Part II
~ June 2019 ~
Welcome to the Merager Financial Solutions LLC newsletter. We're so happy you are here! Each newsletter provides a wealth of knowledge and inspires business growth.
Delegation is normal
Once a company has sufficiently matured, it realizes that the best way to get things done is to have the best people do the work. Mature companies also have a significant amount of work to do, and thoughtful leaders understand that they should focus on their expertise. The world has changed, where extraordinary and competent people create professional-grade results for small businesses in their own area of expertise and only charge only for time spent on task. Offloading these technical and creative tasks to professionals is often the best decision.
TAKEAWAY: Every person has a talent that is most valuable to a company and their time should not be used to solve less expensive needs.
Actively managed costs
While it is a milestone for any company to create a profit for itself, sometimes the most challenging task is to manage costs. The best way to do this is to have accurate reports that are created by a competent CFO and reviewed by management at least monthly for opportunities, waste and budget vs. actual spending. We should also make a point to revise vendor contracts whenever possible. Explore reducing expenses such as duplication, overhead, change billing to longer periods, and look into deductions for early payments. Some vendors may be willing to provide the same service at a lower cost if their contract is more secure or more business is promised. On the other hand, there can be the temptation to move from a trusted vendor that charges more to a lower-cost vendor who is not reliable and that may lead to a trusted vendor parting ways.
TAKEAWAY: Vendor management is a crucial management obligation and opportunity.
Bid management is a function of both long-term data, an in-depth knowledge of the marketplace, very detailed business requirements from the client, and an understanding of project management. While working with bids, set the expectation that there may be overages. There may be an increase in material prices and that vendors naturally include a profit margin. A properly managed project can leverage knowledge about how to do something based on past work experience and very often a company that has specific, in-depth knowledge about a deliverable is in an excellent position of charging based on the value that they bring to the potential client. It's important to remember that the potential client may perceive a higher-priced bid as a higher quality deliverable.
TAKEAWAY: Use historic data to create high-profit bids by leveraging your company’s expertise, industry knowledge, and pricing sophistication.
Minimal stock on hand
Stock on hand can become an afterthought to the companies that have the mistaken belief that they need every single item on hand at the exact moment that somebody needs it. A successful company understands that an immediate need for an uncommon item can translate to a higher price. That said, there are certainly some business types like hardware stores that must have several combinations of each item on hand, but the opportunity there is to track the “time on shelf” for each stocked item and keep only enough where the time to sell least amount on-hand equals the amount of time to have new stock shipped in.
TAKEAWAY: Minimize stock to absolute minimums and use working capital to grow the business.
Exit strategy planning
One of the best ways to start a business is to organize with the idea that the business could be handed-off to a third party and it would continue with the same increasing profits. Bringing procedures and policies into a company/employee handbook creates an environment where at any time, financing can be secured, partners can invest with confidence, or the business can be sold outright.
TAKEAWAY: An exit strategy is more of a state-of-mind than a plan of action. Value is created when a company has a business continuity plan that clearly reveals its revenue stream.
If you need assistance with anything we’ve discussed here, let’s talk so you can reach your financial goals, growth, and revenue. Spend your time doing what you do best and make more money by having us solve your most pressing financial issues.