Is it time for a ‘fresh look’ at your business?
Before we get started, I would like to have you get hold of the October 31, 2019 issue of Forbes Magazine and Steve Forbes Fact and Comment on pages 21 and 22. In this column, he defends profits and wealth and how they help produce the GDP and GO numbers generated by our economy. He also goes on about the costs of living in a Scandinavia which are far above what any U.S. citizen is currently paying. In short, without wealth and profits our economy would stagnate. Well worth the read.
In addition, there is a weekly commentary from John Mauldin called “Thoughts from the Frontline” which is free and very well written in “English” and understandable. I suggest you sign up for it and when you do go back over the last couple of months columns and find the discussion about MMT (Modern Monetary Theory) to get a review of what this all means. In very simple terms, MMT suggests can just print money to pay for things without impacting the overall economy. Personally, I have a problem with that theory. Mr. Mauldin tells it straight no matter if it is good news or bad news. He also invites other economists with opposing views to make their case as well.
Both issues could be on your plate within the next 12-18 months requiring some thought as to how and when they may alter the course of your business.
Back to a ‘fresh look’ at your business.
At this time of year management is reviewing 2019 results along with the pluses and minuses encountered along the way, and at the same time creating the planning for 2020 along with a budget expected to meet debt service and adequate cash flow to fund Cap-X needs. I would assume that by the time you read this you have a folder on your desk containing both the plan and budget taking into account some sensitivity analysis reflecting how cash flow would be impacted if revenues fall short by 20% or exceed budget by 20%. Nice to have this data at your fingertips now so that you can have a plan in mind to mediate any cash flow problem.
With all the craziness going on you should really have a fallback position planned out for 2020.
Part of your year-end planning most likely includes a review of your current bank relationship including terms for your working capital lines, equipment lines, floor planning arrangements and potential new lease agreements and those covenants you need to deal with. Floor planning may be provided by another source but still requires a review to see if any adjustments are necessary.
One adjustment I know of that needs discussion is the interest rate being charged because most likely the rate was set when interest rates were higher and expected to go even higher, when in fact they have moved lower and may wind up even lower yet. This being the case a request for a lower rate is certainly reasonable. And you know what, I think you will get it.
Based on what I am hearing and seeing banks are looking for additional business and do not want to lose current customers. So, unless you are a terrible credit risk, I think you will find them to be willing to listen to any reasonable request for a rate adjustment.
I recently had bankers in for one of the companies I work with and threw out how the rates have decreased and current Libor + 2% is lower than what I am paying. They didn’t walk out. They didn’t say “No”. In fact, they immediately said Ok, we will look at it and come back with a lower rate. Quite frankly, I almost fell out of my chair and was ready to ask for an interest only period but stopped myself before asking. So, get on the phone and get them in to discuss adjustments to loan terms, covenants and interest rates. You may be surprised at what you get.
Now let’s get to the fresh look of your business.
My question here is:
ARE YOU CURRENT WITH INDUSTRY AND/ OR BUSINESS TRENDS you read about every day in the email you receive? Are you adapting to change, or will you find yourself competing with others who have lowered their costs along with providing more and better services?
ARE YOU EASIER TO DO BUSINESS WITH than you were five years ago? If not, you need to take a ‘Fresh Look’ at your business and find out what others are doing, how much it cost to do it, and how they are implementing the changes and tracking result?
Some of the questions you may investigate are as follows:
- Do you have an APP for your business?
- Is your accounting and CRM systems state of the art?
- Can you drill down into your data to search out opportunities?
- Are you marketing effectively and measuring related results?
- Are you training you sales staff using the latest lead generation methods?
- Are you making more money with fewer employees?
If you cannot answer “Yes” to at least four or five of these questions, I suggest you bring your management team back to the table to discuss how you will remain competitive without adopting new systems and procedures that provide more sales per employee and more gross margin per employee, or said another way….using technology to replace people and reduce costs.
Is it time for another meeting at your company?