The time-honored rules of profitable management are a critical ingredient for building sales and profits when the going gets tough.
By William J. Lynott
The upheaval in today’s economy has given a rebirth to the basic dynamics of successful business management. Easy to ignore in good times, the time-honored rules of profitable business management are a critical component in the recipe for building sales and profits when the going gets tough. These ten tips can help you and your specialty fabrics business to survive and prosper in this and in any business climate.
1. Never allow any of your money to lie idle.
Making the sale and collecting on your invoice is only half the job. Once you’ve collected your money, it’s important to manage it skillfully. If you don’t already have a money market account at your bank, open one and have it linked to your business checking account for telephone or online transfers.
Deposit all of your daily receipts into the money market account, where they will immediately start drawing interest. Never deposit receipts directly into your checking account: Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover checks written. The banks have made this procedure so easy to use that there is no longer any excuse not to take advantage of it. Keeping all of your money working for you all of the time is an important part of business management.
2. Be aggressive about collecting accounts receivable.
It’s important not to allow your accounts receivables to go untended. You’ve earned that money; you have a right to it; you need it. Dunning late-paying clients may not be your favorite pastime, but setting up an accounts receivable file and following through on late payments is as important to your financial success as the quality of the services you offer. If customers learn that you are cavalier about money owed to you, some of them are likely to stretch your patience (and your cash flow) to the limit.
3. Pay your bills the smart way.
There’s a good reason why checks are slow to come in from people who owe you money: It’s because hanging on to cash as long as possible keeps that money available to draw interest or work in the business. That’s why it’s important to set up a system to pay your bills the smart way. It’s easy to do and moves you up another rung on the ladder of smart cash management. Never jeopardize your credit standing by paying bills late. Pay your bills just before they’re due—not before, not after. It’s especially important to avoid late payment on credit card bills, due to the oppressive penalties that most banks are now putting into place.
4. Adopt a marketing mentality.
If customer satisfaction is the mashed potatoes, marketing is the gravy. Keep in mind that marketing involves far more than an ad in the Yellow Pages or passing out your business cards. Marketing can present complex challenges, all the more so in a business operating in a specialized industry. If you are to achieve optimum success in marketing your business, you must be willing to spend time studying, reading, and analyzing your market and your competition.
Keeping your business healthy and profitable requires an ongoing marketing program. Competitive prices alone won’t do it; dependability alone won’t do it.
Marketing embraces all facets of your operation. To be an effective marketer, you must nurture and promote your business image, sell yourself as well as your business, and concentrate on making your products the best choice for discriminating clients.
5. Determine that you will never lose a client to a competitor.
Numerous studies over the years have shown that, on average, it costs five times as much for a business to find a new customer as it does to keep an old one. That’s one of the most powerful concepts in the world of business. With competitors standing ready and anxious to snatch away your clients and prospective clients, and your awareness of the cost of replacing a lost client with a new one, it should be easy for you to understand the importance of never giving even one client a reason to stray.
Once a client uses your services for the first time, you’ve done the hard part. Now your job is to instill the notion that doing business with you will always be a satisfying experience. Never lose sight of the fact that developing a new customer is a costly and difficult job. Once a stranger becomes your customer, a major part of your overall marketing program must center on ways to make sure that he or she never has reason to leave you for a competitor. Communication should be ongoing.
6.Keep leasing in mind.
Most financial advisors agree that leasing products like cars or vans for personal use is usually not financially advantageous. But business is a different animal entirely. In business accounting, leasing can be the most sensible approach to many types of capital investment. It usually makes sense to lease if you will be able to use the cash in your business or in your investments to earn a better return than the cost of leasing. Talk to your tax advisor about this the next time you’re considering a large capital purchase.
7. Go the extra mile.
Never forget that a complaint from a client can easily be converted into a valuable asset. Some years ago, a major retail marketing study revealed that clients whose complaints were satisfactorily resolved became better clients of the company than they were before the incident that triggered the complaint.
Some of the most successful companies in the world have been built on a foundation that revolves around the principle that client complaints provide a valuable opportunity to build the business. When L.L. Bean, founder of one of the world’s most successful catalog order firms, was starting out, he suffered what could have been a disastrous setback. Shortly after he began shipping his first waterproof, handmade boots, complaints that the boots leaked started coming in. Determined to fulfill his promise of client satisfaction, Bean returned the full purchase price to every client. Then he set out to correct the flaw in the boot’s design. That was the beginning of the client loyalty that helped to make L.L. Bean what it is today.
Sometimes, satisfying a client complaint calls for measures that you may feel are unreasonable. When that happens, think of the cost in time and money as an investment in the future of your business. Once you’ve sold yourself and your employees on why you are the best choice for clients who require the utmost in dependability and quality, focus your marketing efforts on ways to promote this image to both clients and prospects.
8. Set your business apart.
America’s most successful entrepreneurs, gigantic or tiny, are those who have carefully developed and cultivated an identity of their own. Your job is to evaluate your strengths and then combine them to form a unique identity: a identifiable and recognizable image for you and your business. Perhaps you’ve been in business longer than your nearest competitors, or maybe you have a reputation for especially skillful workmanship at competitive prices. Whatever your marketable strengths, write them down, study them, and determine how to separate yourself from your competitors. Motivate potential clients to seek you out, and existing clients might also feel fortunate to have discovered you already.
9. Guard your most precious business asset—your employees.
Whether you have a few employees or a few dozen, they form the bedrock of your business. While adequate wages and benefits are a fundamental requirement for employee satisfaction, money isn’t the only motivation for most workers. Recognition for a job well done, respect for individual effort and staff empowerment are important contributors to low employee turnover and high productivity. Nonfinancial incentives and rewards are valuable at any time—but they take on special importance when circumstances limit your ability to hire and train additional staff or increase wages. Loyalty has to go both ways.
10. Develop a personal relationship with your banker
Handling money is a banker’s job, and most are very good at it. Even if your operation is relatively small, it’s a good idea to develop a personal relationship with the manager at the bank where you do business. Discuss your financial picture honestly with the manager of your local branch. You’ll get some good ideas and a favorable ear should you ever need a little financial help.
To some manufacturers, a tight economy means going into hibernation. To others, it’s a time to increase client loyalty, solidify market position and attract new clients. As the economy improves, these are the businesses that will be in the best position to capitalize on new opportunities.