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Review Operation Procedures, Expenses

Run Your Business Effectively: Evaluate Operating Procedures, Expenses

Run Your Business Effectively: Evaluate Operating Procedures, Expenses

Managing expenses effectively is a vital part to running any business. With the new year approaching, what better way to celebrate than to make sure your business is operating as smoothly as possible.

Operating procedures are often the first thing a customer or vendor encounters when interacting with a company. As a business owner or manager, reviewing operations can improve customer relations and help contain costs.

As part of the review, operating expenses and lending relationships should also be evaluated because practices are continuously changing, and what may have worked for your company in the past may not be the best option now.

Evaluating operating procedures

Effective communications

Making sure that your staff members are communicating with one another sounds obvious, but it is important to check that the communication between all levels of management and employees is working well and everyone is on the same page.

Breakdowns in communication can lead to quality and customer service issues that can result in increased material and labor costs, not to mention dissatisfied customers.

Improve floor or space plan

Does your facility’s floor plan allow for efficient movement of material and employee safety? Consider utilizing Six Sigma analysis, a business management strategy originally developed by Motorola, but is now widely used in many industries.  An outside consultant specializing in the field can be well worth the fee, frequently paying for themselves through the costs savings they implement.

Update electronics

IT systems must be in place to provide timely, accurate reporting for management to make decisions. Aging equipment can also slow down productivity and efficiency. If your budget allows, consider making new electronic purchases before the end of the year. This can be good for taxes and help get the year off to a good start. Also, moving toward a paperless office can help reduce supply and storage costs and increase productivity.

Review operating expenses

Check insurance coverage and rates

As with any type of insurance, it is important to make sure that the company is getting what it’s paying for. Review insurance policies for acceptable coverage and negotiate better rates without giving up the protection that your company needs.

Negotiate better terms on rent

With the number of vacant buildings around, landlords may be more willing to accept less to keep the building occupied and generate income. You may also find that by shopping around, you can get a larger space for less money.

Look into employee benefits

Benefits can be a significant cash expense, so make sure the benefits are adequate for the location and industry of the business. If necessary, have the employees share some of the cost.

Hire the experts

A good CPA can provide tax advice to save cash. You should consider hiring competent outside professionals because they can save you a significant amount of money in the long run.

Eliminate unnecessary costs

Labor is one of, if not the largest, cash expense item. Review job responsibilities; overtime costs may be avoided by hiring additional staff. During a particularly busy season, temporary staffing can be used to fill a need at lower wages without benefits. Outside consultants can also provide high level, expert skills without incurring salary costs.

Are your marketing dollars being spent wisely?

While it is common to cut marketing dollars to curb costs, this is a short-sighted strategy as marketing is an investment in the company’s long-term growth. Good marketing should generate qualified leads, help to develop business growth and strengthen your brand name. It should also be strategic and consistent.

Re-evaluate lending relationships

Find a lender to suit your needs

Does your lender provide support and flexibility to meet your cash needs? What worked for your business in the past may not work for your company now. You may find it more helpful to shop around with other lenders for better rates and terms — or, in some cases, other loan options, such as factoring or asset-based loans.

Review loan documents

Do you have a contract that requires you to stay in the relationship for a period of time and pay an exit fee if you leave early? If you have more than one loan with a lender, chances are the loan docs have cross default language. Cross default means a lender will tie your loans together, and it is a provision in a loan agreement or other debt obligation stating that the borrower defaults if he/she goes into default on any other obligation.

By reviewing current operating procedures and expenses, you can find ways to save money while increasing efficiency and customer satisfaction. Although you might not think your business has any inconsistencies, there are many moving parts in any organization, and it is important to revisit your current practices.

For more information about how to run your business effectively, evaluate your operating procedures, expenses and more, visit fswfunding.com.

 

piggy bank

Cash Strapped Companies Seek Solutions

The economic downturn and volatility of the financial markets has left a large number of established businesses with difficulty managing cash flow. Cash-strapped businesses, big and small, are paying their bills more slowly than ever. It’s a cash flow river — or trickle in this case — that flows downhill, impacting the businesses below that require healthy cash flow to operate effectively.

As larger companies and small business owners have trouble paying their bills, they are quickly discovering fewer and fewer options. Banks are not lending and credit lines are stressed. What many businesses owners and managers don’t know or have not previously considered is the possibility of factoring.

For small to mid-size companies doing business-to-business or business-to-government transactions, factoring may offer a financial solution that will keep the doors open and even help them grow.

Factoring is a form of financing based on a company’s accounts receivables or billing invoices. A company with slow-paying customers who pay between 30 and 90 days will approach a factoring company to provide cash. The factoring firm will make an advance of 80 percent to 85 percent against the company’s billing invoices for a percentage less than they are worth. The factoring firm charges a fee for the advance, which is based on how long the advance is outstanding, then provides the company with cash as if the bill had already been paid, and the factoring firm collects on the invoice itself.

The result is the factoring firm can help close the cash gap by advancing funds on earned, unpaid invoices so the company can use the funds to pay daily operating expenses such as payroll and vendors. Factoring will usually give business owners more availability of funds than a bank. In addition, factoring funding can be available within a day or two after the application process is complete. The best factoring firms make factoring fast, easy and flexible.

Factoring differs from a bank because factors make funding decisions based on the credit worthiness of a business’ customers. Banks, on the other hand, make credit decisions based on a company’s financial history, cash flow and collateral. Most importantly, a factor makes funding decisions in days or hours, while banks generally take weeks or even months.

This was precisely the case for Phoenix-based American Printhouse, which provides design and screen-printed apparel and accessories to local and national accounts. Its clients include Chaps Ralph Lauren, Calvin Klein, Disney, Liz Claiborne, the U.S. National Parks Service, Sony Signatures, the Arizona Diamondbacks, the Phoenix Zoo and Discount Tire, to name a few. Garments created and screened at American Printhouse are then sold to 1,500 independent specialty retailers and larger clothing retailers such as Hot Topic, Urban Outfitters, Buckle, Dillard’s, Kohl’s and Target. The company offers 12 different types of printing options for its garments.

Despite employing a staff of 15 and securing an impressive book of accounts on a local and national scale, the company still found itself experiencing the effects of the tightened financial markets.

“We really started feeling the slowdown and clients began asking for net 60 (day) terms beginning in September,” explained Sam Akkad, president and CEO of American Printhouse. “Then we hit the slow season and I was looking at the possibility of layoffs and difficulties paying the rent.”

After multiple banks refused to give the company a loan, and they received notice that their credit card lines were significantly reduced, the building owner suggested factoring. After learning more about factoring in late 2008, the company received $75,000 against their receivables in January 2009, within days of submitting an application for funding. This got them through a rough spot and allowed Akkad to turn things around.

“We didn’t have to do layoffs and today our business is booming,” Akkad said. “We have experienced 125 percent increase in revenue, we are adding new lines of business and looking at hiring.”

Johnny Benson, president of USMX, likes the flexibility factoring allows. Benson joined the company in the 1990s and served as the general manager for a number of years. In early 2008, he purchased the company despite its large debt load due to slow-paying customers. Benson was familiar with factoring and knew the banks would not be favorable to providing a loan or line of credit given the nature of the business.

The company is an environmentally friendly tire recycling facility in Phoenix that fabricates raw product and sells it to be used in playgrounds, artificial turf, molded rubber piping and landscaping. The company picks up tires at retail outlets and other locations throughout Arizona. USMX also cleans up areas where tires have been dumped, both for the state and for private land owners.

The business is growing due to more stringent regulations in recent years pertaining to the disposal of tires. But in order to continue growing, better cash flow is required.

“Working with a factor that allows you to select which customers and which invoices you want to factor is the ideal situation,” Benson explained. “We use factoring as a tool to bring cash flow in order to run our day-to-day operations.”

Regardless of size, factoring can work for companies seeking to fill the gap between invoice payment and payroll, purchasing and other business expenses. If businesses work with a flexible factoring firm, they also have the option of making factoring a big or a small part of their working business plan. Also, while long-term factoring relationships do contribute to a healthy, prosperous business, it would be best to seek out firms that consider factoring a shorter-term relationship. They will be the firms to help get your cash flowing again.

Factoring 101

Questions to ask when considering factoring:

  • Do I have to factor all my invoices?
  • Do I have to factor a minimum amount each month?
  • How much can I factor?
  • Where do my customers send their payments?
  • What fees will I pay?