By Loren Marc Schmerler

Just what is “bottom line management” anyway? Bottom Line Management is a style of decision-making oriented towards increasing a firm’s profitability by minimizing expenses, raising employee efficiency, and maximizing revenues.

Most business owners stress sales growth to the detriment of employee efficiency and expense control. They normally talk sales this and sales that so the solution to diminished profits and below average owner compensation. “If only we could increase our sales, we would be in good shape.” How often have you heard this lament? Many think advertising will do the trick. But how often do they measure the effectiveness or payback on the money spent? I have seen many cases where not spending money would have been the wiser decision, since the increase in sales margin dollars was less than the outlay in expense dollars causing the bottom line to decrease. There is a right way to achieve sales increases, but this article will set forth time-tested and proven techniques to increase profits – whether your sales stay the same or actually decrease!

The following areas are opportunities for all business owners to save money or increase employee efficiency and productivity which ultimately translates into higher profits.

  1. NEGOTIATE ALL PURCHASES. Too many business owners get lazy after they have established an existing business relationship.  Year after year they accept routine price increases from someone they “like and trust” as if to challenge the price increases would insult the vendor.  I’m here to tell you that list price is only a starting point in business just like it is in buying automobiles.  You do not have to compromise service to get a better price.  You just need to know how to ask for it.  I strongly urge competitive shopping on a regular basis to keep vendors “honest” and to stay abreast of market pricing.  One of my clients was able to save $42,000 in 60 days by shopping the competition and asking his existing sources for better pricing.  He received price concessions ranging from a low of 10% to a high of 29% – without changing his supply source.
  2. PERFORM ADEQUATE CREDIT CHECKING. What good is a sale you cannot collect?  You would be better off not selling to a marginal account that to use labor, inventory, and administrative time in a fruitless pursuit.  I encourage business owners to “hurry up and slow down” when it comes to selling new accounts or selling to existing accounts who are building up accounts receivable with a slow payment history.  Better credit checking has a direct effect on cash flow by reducing the time to collect accounts receivable.
  3. STAY ON TOP OF BILLING AND COLLECTIONS. Get on the phone instead of sending dunning letters.  Your customers and clients will be less prone to ignore a phone call than a past due statement.  Seek verbal commitment and specific payment dates and amounts.  Don’t let your customers “slide” when they break a commitment.  If you keep up the pressure in a consistent yet professional manner, the chances are that you’ll be paid sooner – since most others will let matters deteriorate over a longer period.  Remember to get your billing out on time.  The quicker you bill, the sooner you can expect payment.  Billing is one area to use overtime if necessary, since the bottom line payoff is normally greater than the expense outlay.
  4. TREAT YOUR EMPLOYEES FAIRLY. I use the word “fairly” since this area is a two-way street.  Employers should not take advantage of employees, and employees should treat their employers properly as well.  My next statement will have employers howling and employees cheering.  Pay your employees wages which are above market averages.  However, expect and only accept above average performance.  I am a big believer in merit-based compensation.  My experience over the last 19 years dealing with companies in more than 60 industries has proven time and time again the following:
  • Take the proper effort with interviewing, hiring, orienting, and training employees
  • Regularly set goals and monitor progress towards those goals
  • Compensate employees generously based upon their contributions toward company objectives and profitability

Your employees will be more loyal and motivated, and the company will realize greater profits and the owner realizing more personal income.  Said another way – the more you do for the right employees, the more they will do for you and your company.  Share the wealth, and there is more wealth to share.

 

About the Author: Loren Marc Schmerler, CPA, APC, CC is President of Bottom Line Management, Inc., an Atlanta-based management, and business consulting firm which specializes in maximizing profits for small businesses, entrepreneurs, and service professionals.  He has experience in more than 60 industries and conducts business workshops at 10 colleges and universities.  His column appears regularly in various parts of the United States, and he has appeared on radio, Television and in local newspapers.  If you have a question or problem you would like Mr. Schmerler to address, you may send a letter to Sam’s Buy-Line.  Your name and company will be kept confidential, and if chosen, your response will appear in the next issue.