Doug McClure, CEO Global Investment Strategies
I have had the pleasure of owning several successful businesses and working with scores of customers and helping them grow their companies. Over the years I’ve made mistakes, some of them very expensive mistakes. Let me share a few of the more on-point lessons I’ve learned for sustaining growth and profits.
Do provide for adequate working capital. Negotiate as soon as possible with your bank for working capital and capital investment credit lines. The bank extends credit to credit-worthy customers. They don’t extend credit to customers who need it at that moment. Line up credit before you need the credit.
Do establish long term pricing deals with key suppliers. Depending on known costs as much as possible eliminates variables that can negatively impact contribution margins.
Do involve employees in all problem analysis and solution development situations. Agreements with customers is the revenue side. Agreements with suppliers is the cost side. Bringing it all together are the employees. They need to be involved in the developing of solutions to meet customer needs and demands. Without their integral engagement it can all fall apart quickly.
Do take care of existing customers. The current base of customers are essential to achieving breakeven and reaching the projected profits associated with the growth. Consider splitting off existing business internally and resourcing it properly.
Don’t make investments for customer orders without firm customer commitments. The revenue source needs to come first. Without it you are spending capital haphazardly.
Don’t accept an order without validating the direct costs to deliver that order. It is a terrible feeling to realize, after an agreement is signed, that costs to deliver are miscalculated and margins levels you thought you were getting are now lower. It forces painful adjustments throughout the business.
Don’t let a customer be more than 50% of your business without rock-solid agreements to protect your down-side. Large customers who dominate your financials exert external controls on your business. When they are happy things are good. If they become unhappy sleepless nights ensue. If they leave real problems occur.
Don’t try to buy equipment on the “cheap” unless you have lots of time and money to lose. Manufacturing equipment takes a beating, running anywhere from 8 to 24 hours per day. When the equipment is down it’s like opening the floodgates for money to escape. Delivery time frames are not met. Customers get angry. Contract clauses are violated. Repair and maintenance costs increase. None of this is worth the short-term savings investing in cheap equipment.
Don’t hurt small customers by focusing on the big customers only. Small customers, in aggregate, pay the bills (or at least a good portion of them). The company’s financial position relies on minimally achieving break even, and smaller customers are as important to reaching that level as larger customers.
Sustaining growth and profits is never a straight line. There will always be issues and challenges that arise. Focus on the customer relationships, supplier and partner relationships, and employee relationships. Understand the numbers that support all of them. From this position decisions may not be easy, but they will be very well informed.