Often I find myself talking about business with people all over the city. Whether it’s at my favorite restaurant, my dry cleaner, with my family or at sporting events. I can ramble on about the current state of the economy, my Houston Courier Service or problems owners are facing in industries across the board. I’m realizing a common theme these days in the discussions. The theme is a problem with Cash Flow. We all seem to suffer from cash flow problems at one time or another in the life of our business, but these days – it is a much more common problem than it was just a few years ago.
Recently, I started to take a look at my own company to determine what, if anything, needs to be changed or fixed to lower our internal concerns of cash flow. I figured there were some basic areas that I needed to look in to and those were: Receivables, Bad Debt Issues, Too Much Overhead and the biggest – Low Profit Margins.
Today, I’m going to chat about Low Profit Margins. I see this so often in my industry. Perhaps it is because we are service-based vs. product-based or perhaps its because we are all competing for the same business. Either way, by taking a good look at my customers, I was able to see that not only was I not profitable on some customers, but I was actually LOSING MONEY! When you consider the costs associated with deliveries which includes the delivery drivers, the taxes (don’t get me started on the taxes), the gas prices, the customer service group, the technology costs for order placement-tracking and reporting, the costs associated with the building, etc… – things start to add up.
Now, I’m not suggesting that in this tough economy we go in and start raising prices across the board, but I am saying that we need to all be aware of the necessary margins associated with our particular type of business and keep that in mind when bringing in new customers. Often, companies don’t include all areas of cost when bidding on new work. Bringing in new business that generates cash, but is not profitable in the long-run, is a sure-fire way to go out of business.
You may find that you have multiple divisions within your business. Some may be more profitable than others – put your focus there. And bring in customers that understand the value of the service that you are providing. Customers that won’t haggle with you over a few pennies difference. Instead of price haggling, explain why your service is better than the others and don’t budge on your pricing. Your goal is to continue to price your business in a way that keeps you in business. Good customers respect that and understand your need to make a profit.
I know that running a business is more than a full-time job. So, when you are swamped with decisions to make, operations to run, employees to manage, books to keep and new customers to get – remember this – get back to the basics. Ensure your receivables are not out of control, you are not running with too much bad debt, you don’t bite off more than you can chew with your overhead and that you price your work in a way that is profitable. Because at the end of the day, Cash Flow is KING.
Until Next Time,
Eric
