As we head into spring with optimism
that the economic forecast will project better conditions, now is the time
for businesses to study year-end financials,
take stock of the operation and “clean up”
in preparation for a strong spring rebound.
“Even if year-end numbers are preliminary, you have the information you need to
evaluate your people, customers, inventory, every aspect of the business,” says Craig
Johnson, president and CEO, Franklin
Bank, Southfield, Mich.
Actually, cleaning house — not sweeping
the operation of its critical resources but,
rather, tidying up some of the messy areas
— is a healthy exercise for business owners year-round. Efficient, profitable companies don’t wait until tough times for a
house inspection.
“We use the term ‘spring cleaning,’ but it
would be a mistake to only evaluate your
business once each year,” Johnson says.
Smart Business asked Johnson how to
give a business a thorough inspection.
What indicators should business owners
study before doing any ‘spring cleaning’?
At this point, you should have year-end
numbers in hand or at least solid preliminary numbers you can use to gauge last
year’s financial performance. Compare
those numbers to years past. Look at individual line items, but take in the big picture. Do not make a big decision to wipe
out an area of your business based on one
month of poor performance. However, do
consider what variables might have caused
the rut. Ask yourself these questions: What
customers are the most profitable? What
inventory moves the fastest, and what sells
at the highest profit margin? Which
employees are top performers? Next, consider what baggage might be dragging
down your business in all of these categories. That is where you will concentrate
your ‘cleaning’ efforts.
How should customers be evaluated?
Review your customer list and note
which customers purchased products or
services from you last year. Chart the profitability of your customers. If you are in the retail business, analyze your inventory and
note what product lines sold the best. Now,
evaluate your customers based on their
purchase habits and what they contribute
to your bottom line. Say you have a handful of customers that purchase highly profitable products. What type of customers
are these? Profile these customers and
develop a strategy to attract more clients
like them.
On the other hand, make a list of customers that buy a high volume of products
or services that realize very low profit margins. Can you feasibly sell different services to these customers or charge more so
you earn better profit margins? If not, consider whether these customers are healthy
for your business. Could you reallocate the
time you spend servicing these clients to
prospecting better customers? These are
not easy questions to answer. Spend some
time deciding what type of customer your
business needs to be successful.
What measures should businesses take to
‘find’ cash in the warehouse?
Evaluate what inventory moved quickly
last year and what items are stagnant what’s still sitting on the shelves, slow-moving or obsolete. In this economic environment, cash is critical, and you can’t
afford to have dollars tied up in inventory
that’s sitting on the shelf. Rather than maintaining inventory that isn’t selling, discount
and sell it — blow it out of your warehouse
and turn it into cash, understanding you’ll
take a loss. Even so, you can reinvest that
cash into more profitable areas of your
business. Inventory is extremely expensive
to keep on hand if it isn’t selling quickly
and earning your business at least reasonable profits.
What approach should business owners take
when evaluating employees?
As you analyze year-end numbers, refer
to your 2009 goals and beyond. Review
your budget and business plan and decide
what human capital is critical to execute
your vision. By now, you have conducted
year-end employee performance reviews.
If there are people on staff that do not display the flexible, hardworking mentality
your company needs to drive forward, now
may be the time to cut loose workers who
are dragging down the company’s potential. Take your time when making this difficult decision.
What other housekeeping items should business owners tend to as they prepare for a
new season?
Now is a great time to sit down with your
banker and review year-end financial
statements. Get a feel for the direction
your bank is heading in regard to lending.
If you feel like your business is not on the
same page — perhaps you’re on the cusp
of a growth spurt that will require capital,
and the bank is not signing deals with anyone right now — then shop the relationship. Do not allow media or doom-and-gloom reports to convince you that banks
are not lending — they are. You want to
partner with a financial institution that is
prepared to ‘start fresh’ this spring right
along with you.
CRAIG JOHNSON is president and CEO of Franklin Bank, Southfield, Mich. Reach him at [email protected] or
(248) 358-6459.
