Will Limkemann
Business Advisor
The Constant Entrepreneur:
Advice for Running a Productive Business
Cutting costs or increasing profits?
A publication editor contacted me this week asking for my input into an article they are thinking of running about what small businesses can do to cut costs. This got me to thinking that business owners should not be focused on cost cutting but rather on increasing profit and improving cash flow.
In good times, and especially in tough times, business owners should always be concerned about costs. Costs need to be analyzed. Vendors need to be negotiated with. The best possible deals need to be made in purchasing energy, paper clips, and inventory.
But a cycle of cutting costs can rapidly pave the road to extinction.
Rather, owners need to concentrate on profitability and positive cash flow. Sure, cutting costs can contribute to both – but for how long? When times are tough, the owner needs to bolster sales and marketing activities – possibly even increasing expenditures of time and money in both areas. Then the fundamental issues need to be addressed, issues such as: improved productivity, customer service, customer satisfaction, and innovative services and products. For survival the owner needs to play to strengths – not weaknesses.
What is your business doing to improve profitability?
Will Limkemann
Siqua Group Limited
440-871-0976
www.siqualtd.com
Excess Inventory
I have consulted with several clients over the past few months who have been in financial crisis yet are holding on to un-needed inventory, tying up both dollars and valuable space. In two cases selling off the excess material would have been the equivalent of more than one month’s gross receipts, and would have done wonders to improve cash flow. The inventory in question had collected dust for many months, and will continue to do so as the owners elected to do nothing, even though the inventory is not likely to be used or sold.
Here are some things to do when caught with excess inventory you can’t move:
1. Have a sale and market it sufficiently to attract enough buyers.
2. If the inventory is raw material, find a way to use it in creating unique products, re-purpose it, or find another manufacturer to buy it at a discount.
3. Sell it on an E-Bay auction.
4. If all else fails, scrap it. At least you’ll free up some space and write off the loss.
Finding Cash
The single issue that many small businesses have in common is cash flow. Somehow cash inflow just never seems to match cash needs – even when the company is showing a profit. Because the issue is so pervasive and of such concern to business owners, it often amazes me when I see cash lying around.
OK, it is not the cash that is scattered throughout the warehouse, but stuff that can and should be converted into cash.
Last week during a meeting with a client, I took a stroll around his plant while he was on a phone call. I came across a large lathe that, judging from the dust and the fact that it was not connected to power, was not being used and had not been used in some time. I suggested to the owner that he consider selling the lathe. He admitted that it is no longer needed and that he could get several thousand dollars for it. Hmmm. Several thousand dollars could make a dent in substantial debt that he is carrying.
During a tour through the warehouse of another client, I was shown a substantial amount of outdated inventory. Not only was there “cash” on the shelves, but the inventory was taking up badly needed space. A brief conversation revealed that the material could readily be sold in a warehouse sale, and might net up to $10,000 – money that could be used for funding the inventory for a new line.
With prospects that current economic conditions will result in even worse cash flow, business owners need to look critically at every piece of equipment and excess or outdated inventory. If it is not needed and can be converted to cash, then it should be sold.
Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com