Always use your average gross profit margin when formulating your pricing strategies and policies.
When setting your selling price you should be aware of your product's status in the marketplace, its profitability, probable product increases and your competitors' situations.
You should use the NIFO policy Next In, First Out - when raising your prices.
Introduce new products into your current market.
Merge with another company to sell their products in your current market.
Attempt to sell your current products in new markets.
Consider exporting to Canada or Mexico.
Establish a product audit procedure to identify slow moving items and those not meeting an acceptable gross margin.
You should make it a habit to run through a break even analysis for each existing, new and planned product.
Calculate profit contribution when designing your volume discount policies.
Base the volume discount percentages on the costs associated with several production levels.
Consider idle capacity by leaving fixed costs out of the calculation.
Formulate your sales plans based on production levels giving the greatest contribution margin. This will also help you with production scheduling.
Put a provision in your sales order allowing you to change the current price (up to a limit) when your product is shipped. If possible request advance and progress payments.
Charge extra for small orders or create a minimum order size.
Create an order entry system that will efficiently process and expedite your sales orders.
Speed up receipt of your sales orders by doing the following:
call in or wire the orders using company shorthand
receive orders from computer terminals (using internet or modems) located throughout the country (for example, from your sales people)
institute a daily sales order input system
show customers how to order using your forms
Design a report to be distributed daily or weekly showing the current status of all orders received for specified time.
Merge the credit acceptance, invoice creation and shipping paper preparation functions into a single procedure for established customers.
Segregate orders for goods in stock to be shipped immediately from those that have to be back-ordered or manufactured.
Design an order priority system that ranks orders within the same time frame from best to worst (e.g., large, from customers who pay most promptly, for goods in stock).
Evaluate a customer's credit worthiness with his payment history (e.g., open account terms for prompt payers; reduced credit limits for slow payers).
Layout your warehouse and design your packing lists to increase efficiency when picking and shipping orders.
Keep your merchandise in a systematic order with higher turnover items close to outgoing freight operations.
You should list products in your statements and shipping documents in the same arrangement as the goods are stored to simplify order picking.
Always keep current inventory accounts showing actual stock on hand.
Send customers their bills when the products are shipped.
If you are a service business you could invoice by thirds: one-third up-front, one-third at the mid-point and one-third upon completion of the project.
To increase collection efficiency use prompt follow-up letters.
You might want to consider inexpensive ($200) bill collection software available now for the personal
computer.
Appoint competent staff to the credit and collection duties.
Aid and accelerate your billing operations by using pre-addressed (and possibly postage
paid) envelopes along with clear remittance instructions to expedite replies and payments.
Develop a penalty policy for late payments and abide to it.
Examine your balance sheet to "pair-up" assets with liabilities by amounts and terms.
Plan for uncertain times and calamities by providing for your ability to pay off liabilities.
One way to do this is to pay into a "disaster avoidance" account every month. This is similar
to self-insurance.
Maintain your credit history and borrowing capability.
Honor agreements on stand-by loan commitments, lines of credit, and compensating balance requirements.
Make overtures to lending institutions and credit raters with a sound knowledge of what your debt capital requirements are.
If you do have a problem with keeping a payment schedule on a loan don't hide from the lender, but meet with him immediately to work out the difficulties.
Try to reduce your interest expenses.
Consider use of leases, sale & lease-back, medium and long term fixed-rate loans, interest rate futures contracts, etc. to "lock in" favorable interest rates which vary with the prime rate.
Explore alternate financing sources (e.g., SBA, Industrial Revenue Bonds, Certified Development Corporations, Insurance Companies, Pension Funds).
Consider factoring your accounts receivables for immediate cash needs.
If you are willing to give up some equity in your company you can explore venture capital as a source of financing. You can also issue preferred stock, do joint ventures, syndications and private placements.
Select tax policies to assist in financing assets through the best combination of tax elections available, including leasing, investment tax credits, energy credits, accelerated depreciation methods, and ADR.
Select the best business entity for reasons of retained equity, net income and taxable income (e.g., corporation, Sub-chapter "S" corporation, partnership, sole-proprietorship).
Carefully formulate sales projections so you will be able to plan and control inventory quantities and meet your planned service levels to customers.
Use historical sales data to project and forecast your future sales. Some of the techniques you can use are:
If historical records are not available or not useful to your current situation use subjective methods such as individual or collective executive opinion, sales force composite forecast, customer questionnaire and market research studies.
Select an ordering or production system that will tell you when and how much to order or produce.
Manual counting and visual inspecting could be cost effective when the cost of inventory is not high and material control costs have to be kept low.
Use the two bin system when you have high volume, low cost products.
Reorder or produce the items when the first of two bins is exhausted.
Materials Requirements Planning (MRP) can be cost effective and used when you know your material bills, etc. are accurate and you can foresee when each item will be needed.
Reorder point systems specify that reordering of an item should take place when the current inventory level equals the projected need for that item during the time it takes to place and receive the order plus a safety stock quantity.
The reservation system is a variant of the reorder point system. The trigger point to reorder is defined as the "available" quantity on land which is calculated by subtracting reserved amounts used to meet current demand from the actual quantity on hand.
Economic order quantity EOQ selects the best order amounted by using the unit cost and selected variable cost components such as interest, freight, cost of placing the order and material handling.
In the ABC inventory system only those items that are critical high usage or value are carefully recorded and controlled. The less critical inventory is not given as many resources to plan and control its reorder or production.
Always make use of budgets and break-even analyses.
Revise and reformulate budgets and break-even points on a weekly or monthly basis. Justify the costs associated with budgets and search for lower cost alternatives if possible.
Don't expose yourself to haphazard or limited sources of supply. Perform cost/benefit analysis of all your major production and operating functions.
Tune-up your buying activities. Choose vendors who have the following characteristics:
product quality
good historical performance
reasonable pricing policies
sound finances and capability to fulfill your purchase orders
Work out procedures and collaborate with your multiple buying operations to take advantage of bulk discounts and to avoid overstocking.
Regularly request competitive bids from vendors - but only for those items you deem to be meaningful to your bottom line.
Alternate among suppliers to ensure competitiveness and to protect against price increases and shortages.
Use longer or installment payment terms to your advantage.
Push the costs of carrying the inventory onto your vendor by using standing purchase orders. This will also fix purchase prices and cause deliveries and payments to be in installments.
Establish a "trigger" level reorder system for items purchased on a periodic basis. This will also reduce
manual intervention.
Routinely re-examine reorder points when interest rates and other prevailing financial conditions are changing. This also applies to "make or buy" decisions.
Purchase order forms should be clearly and simply laid out with the user in mind.
The following provisions should be placed in your purchase orders:
Check on open purchase orders to avoid shortfalls.
Regularly input new costs into sales pricing activities.
Review your sales activities and performance:
How is slow moving merchandise selling?
Are sales quotas being fulfilled?
Are profit margins being preserved?
Weekly and monthly sales reports should show contributions to profit by sales area, product line and customers.
Review all expenses related to the sales function and how they effect the profit margin.
Cost justify each and every selling location and territory.
Possibly use sales and manufacturers representatives for all or some of your sales regions instead of an in-house sales force.
Institute a policy of timely customer/client meetings.
Consistently evaluate procedures used in production to increase efficiency of running the machinery, employee productivity, plant layout, raw material holding area, work-in-process flow and production scheduling.
Production work should be coordinated with product delivery dates and planned inventory quantities.
Routine operational reviews should encompass why there are bottlenecks, overruns, quality control problems, downtimes, high scrap rate and machinery breakdowns.
You should evaluate your operation's energy consumption to identify potential cost cutting measures.
Challenge each cost center to justify its existence and to be accountable for its activities.
Establish incentive programs for your employees so they will be vigilant of excessive productions costs.
Create production schedules and work shifts so productivity is increased as much as possible and
operating costs, such as energy consumption, are minimized.
Utilize more than one work shift - during the day perform production activities while at night do the machinery maintenance, clean up and setup duties.
Consider extending production runs to shorten clean up and setup times.
Run the high energy consuming machinery when rates are lowest during the night or on weekends. By using flexible shift hours you will increase employee morale and productivity.
Look at the possibility of three twelve-hour or four ten-hour work days for potential cost savings or increased productivity.
Reduce labor costs by hiring unskilled or part-time employees for selected tasks. This will also give you more leverage when scheduling and therefore improve employee scheduling.
By using second shift and part-time help, you should be able to reduce overtime to a minimum.
Set up your wage and salary structures to take into account the effect of inflation.
By keeping merit salary increases separate from cost of living adjustments you will improve productivity and gain esprit de corps.
When dealing with unions attempt to associate the pay increases and benefits with increases in productivity.
Adjust net profits for inflation when dealing with management compensation.
Justify the need for multiple warehouse locations.
By examining and reviewing all activities and operations at your warehouses you will gain better control over inventory holding, storing and handling costs.
Improve inventory turnover by tying all of your inventory locations together into a synergistic whole. For example, instead of back-ordering an item, have it shipped from another warehouse.
Also examine seasonal and cyclical sales periods and then plan to adjust inventory levels accordingly.
Make regular quality control checks on inventory for sale.
Routinely review slow moving items and have a liquidation sale to recover cash.
Use accounting inventory procedures that will decrease your tax liability.
If you are planning to build multiple warehouse sites, consider those states which will save you property taxes.
House imported products in a bonded warehouse so duty is not paid until the items are used or sold.
Study your warehouse layout to see if there are ways to cut costs. Also look at transportation costs and customer delivery time.
To generate extra cash sell or lease warehouse space that is not being used.
Develop cost efficient freight handling methods and controls.
Create standard procedures to route incoming and outgoing freight.
You may want to consider hiring a firm to audit your traffic department.
Develop a procedure to invoice vendors for freight when shipments are refused.
Always keep track of freight claims for accounting control.
Use a freight broker to sell your "less than load" trailer capacity.
Make routine audits your customers' freight charges.
