Two pieces of advice from Diane Lewandowski CPA

ANALYZE YOUR CUSTOMERS FOR A BETTER BUSINESS

If your business is like most, you put a lot of effort into attracting new customers. After all, that’s an essential part of growing the business. But sometimes it’s more productive to step back and review your existing customers, and perhaps even get rid of a few.

You might be surprised at what you find if you take the time to analyze your customers. Start by listing customers in order of sales. Then make your best estimate about the cost of those sales. For example, you might give volume price breaks to your biggest customers that make them less profitable than smaller customers. But don’t just look at the cost of sales. Ask your sales staff, your customer service staff, and your accounting staff to assign a simple grade to your customers (e.g., A, B, C, D, or F). This will give you a relative measure of how much time and effort each customer requires.

Once you have profitability and customer care information, you can begin to rank your customers in groups from best to worst. The “best” are easy. They’re the customers you should make a special effort to appreciate and retain.

You have several options for the “worst” group. With some customers, you might want to change your pricing structure to charge them for the excessive costs and attention they require. With others, you might want to sit down and address specific problem areas. Sometimes just making customers aware of problems can produce positive joint solutions.

In some cases, the only solution is to part ways. Do this gracefully, without creating unnecessary ill will that can come back to haunt you. If possible, find a plausible business reason to support your action. But if necessary, be blunt and tell the customer that you’re cutting back to provide better service to your top customers. Suggest alternative suppliers they might contact to fill their needs.

Eliminating customers may be counter-intuitive, but it can work wonders for your bottom line and your staff’s morale.

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TIPS FOR CUTTING COSTS IN YOUR BUSINESS

Keeping costs under control is crucial in today’s challenging business environment. Without a doubt, one of the quickest ways for a business to cut costs is through staff reduction. But cutting jobs is not always the best cost-cutting strategy. Drastic job cuts can lead to a vicious cycle of reduced productivity, followed by even slower growth and decreased profitability. Replacing skilled workers when times improve may be difficult, leaving your company to struggle longer still.

Here are some alternative cost-control strategies that companies could consider.

* Look at the cost of your office or plant. If the company owns expensive office space, consider moving to a less costly location that will not mean losing clients or business. If a move is out of the question, consider sharing office space with a compatible company. What you save in shared operating costs goes directly to the bottom line (after taxes, of course).

* Consider sale-leaseback arrangements, which enable the company to generate funds for operations and transfer the burden of ownership to the buyer from whom you rent back the office space.

* Review the cost of supplies and inventory. Analyze the cost of materials and supplies. Are you stocking too much material too far in advance? Can you arrange to have products shipped directly to customers by your suppliers?

Periodically conduct a competitive review of suppliers, and select those who can deliver good quality and service at the lowest cost possible. Also, you may not have to pay full price; inquire about volume discounts.

* Outsource some processes. Consider outsourcing certain activities that either consume a great deal of time and resources or are prone to errors. For example, you may be able to have payroll processing done by a vendor at a fraction of the current cost to you.