10 WAYS TO BOOST YOUR COMPANY’S VALUE: Practice #3: Re-evaluate your supply chain
Another way to increase efficiency and save money is by analyzing supply chain purchases and implementing an e-procurement solution. E-Procurement systems have matured in the last decade and today offer many ways to connect in groups and save money on volume purchasing.
Joining a volume purchasing organization can reduce raw material costs, streamline purchase processing costs, and reduce or eliminate “rough spenders” in your company by electronically restricting their purchases to pre-approved vendors.
If you’re in the Food & Bev industry, for example, Foodbuy manages over $5 billion in volume purchases for the foodservice and grocery industry and passes the savings on to its members. Other industry trade groups do the same. You can find specific volume purchasing opportunities in most industries nationwide.
Lastly, the importance of key-input supplier relationships cannot be overstated. Most firms depend on a single key-input supplier as the lifeline in their supply chain. If that supplier goes under or raises prices or treats you poorly, however, there’s little you can do. The consequences can ruin your business and your hard earned customer relationships quickly.
To avoid this, you must find and nurture more than one key-input supplier. Go to trade shows in your industry. There you will likely find eager alternative key-input suppliers. Work with them, explain what you’re up to and work out a trial period. Investing in secondary key-input supplier as a lifeline back-up within your supply chain is a best practice worth every penny when the time comes.
In part 4 of this series I’ll talk about doing an IT system checkup.
10 WAYS TO BOOST YOUR COMPANY’S VALUE: Practice #2: Reduce and Refocus Your SKUs
Many middle market companies took a big hit in the market downturn when they were left with previously well-selling inventory sitting on shelves longer than expected. This is a key warning sign most of you already know well. The best practice here is to rebalance your stock-keeping unit (SKU) mix and focus more on higher profit margin products until things improve.
Many companies hesitate to reduce high volume, low margin SKUs because they don’t want to cut back on anything that sells and contributes to positive cash flows. But you need to look at the longer-term analysis of total costs and capacity utilization. Total costs include inventory-carrying costs such as direct warehousing and storage, transport and logistics, indirect selling, general, and administrative (SG&A) overhead, and financing costs, among others. Often the results are surprising and now more than ever you should be compelled to compare high margin versus low margin products and channels on a spreadsheet each month.
In addition, there is evidence that higher-end consumers are increasing their purchase behaviors faster than lower-end consumers. According to a study released in 2010 by Bain & Co., “High-end retailers, home sellers and car dealers are all experiencing an uptick in business” coming off a historically bad 2009. If your products can cater to an upper-income crowd, focus more on them.
Hence, your strategy should not be to simply try and wait it out for your lower-margin customer segments to return, but rather you should meet those who are still buying with new, high-end, high-margin products, thus creating a relative SKU re-balancing in your product portfolio.
Stay tuned for the next tip on re-evaluating your supply chain!
10 WAYS TO BOOST YOUR COMPANY’S VALUE: Practice #1: Reduce Customer Concentration
One of the first practices to boost your company value when sales aren’t growing is to look closely at your customer concentration (CC) levels.
Customer concentration warning signs occur when any business has sales or accounts receivable in excess of 15 percent (of total sales) from a single customer.
While in many cases 15 percent seems a low risk, many financial institutions, including banks, investment funds and even the SBA, will question you in order to understand the trend and go-forward risk if you should lose that customer at some point. High CC businesses risk higher interest rates, and a potentially lower corporate valuation. A valuation downgrade or discount can affect your future expansion or sale plans more than you might expect, and who needs that these days, right?
One of the easier ways to reduce high CC, obviously, is to spread annual sales across a wider customer base. Try to incentivize your sales team to add new accounts, not just to increase sales from older ones. And while trade shows are the perennial stalwart for increasing accounts, be sure to develop a webinar and social networking channel strategy to expand your geographic coverage. I have clients who are expanding customer accounts internationally using webinars and social networking tools.
In the event you simply can’t find a way to reduce high CC, try to create as many layers of protection between you and the key customer as possible by signing multiple term and product contracts with staggered expiration dates. This, in effect, spreads your sales across a wider group of buyers inside the account such that no one buyer can pull the plug with the stroke of a pen or phone call. This strategy can help protect larger accounts from walking away by breaking them up into smaller contract pieces. Make sense?
This is the beginning of a ten-part blog series where I’m going to share 10 best practices I advise my clients to adopt when sales figures are down and they need to boost their bottom line.
The recession of the past four years has made it difficult for middle market businesses to produce positive sales figures to support company value. Maximizing your company’s value in a period of declining sales is a very difficult task. There are, however, some key ways to improve company value in the eyes of your financial institution, investors or potential buyers.
When the top line is down, it’s the bottom line that matters, so focusing on increased efficiency and reduced costs are the ways to improve financial health. The most important thing to remember is that you need to plan ahead and begin work now, before the situation worsens.
My tips are: reduce customer concentration, reduce and refocus SKUs, focus on key suppliers, do an IT system checkup, review marketing and advertising ROI, reduce overhead expenses, institute a means to track financial performance ratios, reduce COGS expenses and develop new products.
Bookmark this site and look for my first tip next week: how to effectively reduce customer concentration, or else!
Fund Raising down 24%, Investment up 29% year to year Q3 2010 vs Q3 2011 – what?!
It’s enough to drive anybody crazy when you see Dow Jones report the ups and downs in VC fund-raisings & financings. Is it perhaps the lag effect that is the most revealing metric this time around? VCs are either going to run out of money to invest, or they see something fund raisers don’t. You be the judge. Read the Oct 12 Post below and then come back to this one and let me know your thoughts.
LA TIMES Article by Tiffany Hsu, Oct 11, 2011
Third-quarter venture capital fundraising plummets
Venture capitalists raised $1.7 billion in the third quarter, less than half the $3.5 billion collected in the same period last year and the lowest amount since the third quarter of 2003 as investors retreated from riskier projects because of a lagging economic recovery, a European debt crisis and downgraded U.S. debt.
Everything seems to be changing fast. 2012 is expected to bring more questions than answers in middle market mergers and acquisitions. For this reason I have started this blog to help provide answers – from my experience and from experts around the world.
That’s our mission statement: share key success factors in mergers and acquisitions with you, the business owner who wants to know where they stand. Fair enough?