Unconventional ideas may boost bottom lines

There’s no shortage of businesses that want to improve their financial pictures, but it may take a little outside-the-box thinking to get them where they want to be, according to area business experts.

In the aftermath of the economic downturn, more businesses are seeking help through the Small Business and Technology Development Center at Missouri State University, said director Rayanna Anderson, but it’s a different kind of assistance than it might have been a few years ago.

“We have seen an increase in businesses that are struggling,” she said. “Just the change in the economy was enough to trip them into a difficult situation. When you look at an industry standard of a net profit percentage, the average net profit that a business has is about 3 percent … so when you have this kind of economic hit, it doesn’t take a lot of decline to really affect that bottom line.”

And when the bottom line needs shored up, Anderson said, there are two areas that must be explored.

“You either have to find more customers, or you have to reduce expenses,” she said. “I like to approach it from both sides.”

The cost-cutting myth
Consultant Don Harkey of Galt Consulting LLC said he’s not opposed to cutting expenses by eliminating waste, but he said he steers clients away from the idea that businesses can save their way to prosperity.

“If you’re looking at the bottom line and you’re not happy with it, start with the top,” he said. “You can buy cheaper pencils, but you’re not going to stay in business that way.”

While cost savings are critical, they don’t have the best long-term potential.

A better move, Harkey said, is developing ways to boost sales, even if it means trying something new.

“Imagine if you could break into a new market or utilize the resources that you have to find a new product, customer or service, or a new way of charging for that service,” he said. “You have something sustainable for the future,” he said.

Sean Saunders, owner of SWS Golf LLC, said creating a new business model – at Harkey’s suggestion – has helped his golf instruction business thrive in the current economy.

Like most pros, Saunders said he used to operate lesson-to-lesson, offering his customers a free lesson after the purchase of four. But now, he’s trying a new approach aimed at getting customers to focus on improving their scores instead of the cost of each lesson.

“I don’t sell lessons,” he said. “What we’ve incorporated is The Next Level, helping clients move up the ladder – beginner, recreational, intermediate or advanced – bringing on line the services that will bring them to the next level.”

Saunders said he didn’t change his pricing, however. A half-hour of instruction runs $45, and fees vary for add-on services such as club fitting, bag analysis or video swing analysis.

Saunders said clients who enroll at least in the program’s core – which entails putting, chipping and pitching, and choose which add-ons will be most helpful depending on skill levels and goals – receive a 5 percent discount when they pay upfront.

The results-focused program is growing his business.

“If they get results, they’re going to tell all their friends,” said Saunders, who added 30 new clients in April. “I have two clients who have referred out to me 20 people. That’s how you grow your business in a recession.”

Kelley Still, director of the Edward Jones Center for Entrepreneurship and Innovation at Drury University, said willingness to try something new is a good idea for businesses at a time when their natural inclination might be to avoid all risks.

“They have to try new things, find new niches and fill unmet needs instead of just protecting what they have,” she said.

Joseph Page, a certified public accountant and partner at The Whitlock Co., said that while he’s aware that some companies are streamlining administrative functions to improve financial results, it also is important for companies to make sure they’ll be appropriately positioned for when the economy bounces back.

“For instance, one manufacturer has spent basically all of 2009 looking at more research and development projects, improving their products and rolling out new products that will be there when the economy turns,” Page said. “They were able to retain a lot of their quality employees to work on these research and development products.”

Streamlining expenses
Changing course isn’t a one-size-fits-all fix for companies that want to improve their bottom lines, though, and that’s why Anderson said it is important to consider controllable costs.

“In general, you’re going to look at cost of goods and payroll,” Anderson said, noting that it may be a good idea to compare costs with similar businesses, or with up-to-date sales figures. But that’s not to say that the shortest – or best – route to improving a company’s outlook is through job cuts. Sometimes, Page said, duties can be combined, and Harkey noted that rather than cutting employees loose, it might be better in the long run to make sure all staff members are in the positions that make the best use of their skills.

Drury’s Still acknowledged, however, that sometimes job cuts are unavoidable, and if that’s the case – or even a possibility – she said it’s best to keep employees in the loop.

She cites Jack Stack’s open-book management philosophy, as used in the Great Game of Business, as a good tool, because it not only puts the numbers out in front of people, it also gives them the power to change them. Sometimes, she said, it may come down to group choice – layoffs versus pay cuts for instance – but the key is making sure employees know what they face.

“When you use open-book management and throw different scenarios out for everyone to discuss, you can reduce that really destructive behavior that goes on when people come to work every day wondering when the layoffs are going to start,” Still said.

Focus forward
As companies wait for the economic pendulum to return to better times – Anderson and Still said there are indications that it already is doing so – there are steps they can take to be ready. For instance, Anderson said, many businesses cut advertising spending when finances are tight, but they really need to be making sure they stay in front of customers.

“Do you have a customer list? Are you in contact with those customers electronically – e-mail, Web site,” she said. “Those are very effective if you have the right formula, and certainly, they are a lot cheaper than direct mail (with) printing and postage costs.”

She noted, however, that it’s important to reach the right customers.

“The last thing you want to do is (use) the shotgun approach – ‘Oh, I just need more customers,’” Anderson said. “You need the best kind of customers that your business model is set up to perform with.”

CPA Page agreed that facing forward is a good approach.

“No one has a crystal ball to know for sure when things are going to really turn,” he said. “There are indications that we’re headed in the right direction. The businesses that can afford to do so still need to be looking forward – versus at what’s going on today – to maximize profits when the economy does come back.”[[In-content Ad]]