Cost savings – The differences between big and small businesses are many. Each has their strong points and weaknesses. Big business can buy retail shelf space, but small businesses are more flexible, more able to seize opportunities, are local, and have a reputation for being of high value and trustworthy. They can undergo cost savings easily.
Small business owners should appreciate the advantages inherent to being small, then use that and take advantage of the position they are in. An owner can make better decisions by looking at every situation, and take the time to make a list of all the plusses and all the minuses. Then, take action to mitigate the minuses and enhance the plusses. They can accordingly take cost savings step.
Business is simple: it is making things and selling things. Owners are advised to not spend too much time writing a mission statement. Cost savings are important here. Recognize that the first job is to grow the business at a profit, to be more financially secure and to build equity.
The key factors to business success are making a product well, then selling it well. When dealing with a consumer product, factors are: Where is your product available? What is the right price? Is there enough inventories to supply demand? What is the supply chain? Is the re-order system in place and working? Finally, promotion is key. Don’t get distracted by other things that are not core to the business.
What are the basic reports that a business owner needs in order to manage the business? A business owner must ask “how well am I organized?” and allow enough time to work on the key factors. The owner should control the business and his schedule. Have a simple system that looks at invoices, and makes you aware if a customer is not re-ordering.
Have a distribution chart, and know if customers are stocking your full line of products. Get out to the stores and look around. In-store demos are a major selling tool. If you do one, figure out if it’s working. What was the result of that activity?
If you are spending money on promotions, you need activity reports that tell you if they’re successful or not. Otherwise, go for cost savings.
And finally, a gross margin report shows what it costs to make a product, so you can compare cost among your items. Include the labor, packaging, raw materials. Those reports talk directly to making things and profit. You need reports by product of what’s going on with sales. You need a report that puts it all together, the cost to produce and sales cost, including the freight costs. Once you know what is profitable, what is working or not working, then take corrective action. Know, after all costs, what is making money then build that segment of the business. Spend money where you get the most return or else undergo cost savings policy.
The job of good pricing is to allow the business to grow profitably. Most of the time consumers don’t know what the right price should be. When pricing, include all the costs: the cost to make, cost to market, trade discounts, credit losses, all need to be identified and recognized. Include office costs, and build a profit into the price.
And then, review the pricing system on a regular basis. If materials cost more, labor costs more, don’t be afraid to mark the price up. Too many people sit on the same price, afraid to move. React to inflation, and mark your price up.
Never let credit problems get in the way of sales. There are risks involved in extending credit. Small business people are dealing with other small businesses, and sometimes tend to be too social and not businesslike enough. Ask the potential customer, ‘How do you intend to pay for it?’
Be careful of large orders from new customers. Have an iron clad system for following up on credit. One day after the due date, a phone call is made. Don’t allow ‘aged account receivables’. Have a way of chasing them down as soon as possible.
At the end of the year, look at accounts and ‘fire’ the bad debt customers. Write a letter that says, ‘When you pay in advance and after your check clears, we would be happy to ship you our product.’ Then spend energy creating new customers.
Blow Your Horn
Build a promotional budget into the pricing. Use creative thinking and allow enough lead time for a promotion. When done smartly, the ‘point of sale’ materials enhance the consumer’s knowledge of what the product is about. Use your package. It is a communication device between you and your consumer. You can offer premiums, coupons, a newsletter, a cookbook. You want their email address. If the retailer throws you out, you can sell direct.
Small businesses are often asked to donate products. Use charities; demand something from them. If they want to give product away, ask for a list of the attendees at the conference, or include a list in the bag of where they can find the product. Turn it into a promotional opportunity.
Use your position as a business owner. Everyone likes to know someone who owns the company. Be ready to give away product, sample sizes, and be known as a personality behind the product.
Trade shows, like the Winter Fancy Food Show in San Francisco, are an investment. Before going to a trade show, visit it at least once. Walk around; evaluate the competitive products, the selling techniques. Identify targets, let them know you will be at the show and invite them in advance. After the show, be ready to follow up on the leads you made.
Problem Solving & Creative Thinking
As an owner, time spent on problem solving is a good investment. This starts with stating the problem and the goal that is wanted. Get the numbers involved, be an objective observer while collecting data. Identify alternative courses of action. Sit down, grind it out and work on it.
Creative thinking is more difficult. Observe things, with meaning. Extract some core ideas, some trends, then take that and relate it to your business. Expand the application until it gets to an extreme, then pull it back in to what is a more reasonable idea. Re-adjust the idea based on feedback. The strength of small business is “we can fail small”. Get your ideas out and test them, inexpensively.
There is a temptation in business to complain, to use excuses. It’s tough to do business, but others are still succeeding. So be sure to not use excuses to erode confidence in the future, and increase your failure rate. It’s going to be difficult, so enjoy it like a tough tennis opponent or a challenging ski trail.