Posts Tagged ‘supplier’

Consult This Advisory Board To Improve Business Cash Flow

July 6, 2010

by Doug Smith, President, The Woodhaven Group

It can be lonely as the owner of a growing small to medium sized business.  Often a problem or opportunity may come up and as an owner you wished there was someone to bounce ideas off of that really understands your business.

Owners never have enough trusted advisors to turn to that really know what they are talking about and will shoot straight with them.

Oh yes, there are bankers, attorneys, and accountants and most of them mean well but have not run a business and had to meet cash flow deadlines.  The extent of their knowledge of your business and industry is what you have shown them. 

Here is who I have used over the years as an informal advisory board when I needed a second opinion or felt like I needed a fresh idea:  the CEO or National Sales Manager of my top supplier.

If your #1 supplier has done business with you for years then they probably know your company as well as you do.  They may know your industry even better than you.  You need to tap into that knowledge.

Make no mistake, top management at your #1 supplier has a vested interest in you doing well and your company growing it’s marketshare.  They want to help.  They want your business to be successful.

Unlike an attorney or banker, your supplier is in a unique position to observe and understand the trends taking place in your industry.  After all, the CEO and National Sales Manager are meeting with owners like you everyday across the country.  They know the difference between the superstar managers and the B-team.  They see changes happening in real-time. The existence of their own company depends upon the everyday business decisions being made by their clients. They cannot afford for those decisions to be wrong.

I have often used input from these individuals in my decision-making.  A few of the benefits I have gotten from my best suppliers have been:

  • A unique successful promotion I implemented that had worked for another company in a non-competing market in the country.  I did not have to resort to trial and error advertising.
  • Identified which benefits of the supplier’s product got the best results when featured in advertising spots.
  • Personal introduction to owners in other parts of the country similar to my company.  I then successfully developed a mutually beneficial relationship that has lasted over the years.
  • Suggestions for reputable suppliers in other product lines that other owners had used that did not compete with his company.
  • Cost savings ideas he had seen work in other companies that ended up increasing my business cash flow.
  • Marketing channels that were working or not working and why. 

Developing a close relationship with the CEO and top management of your supplier can also work in reverse.  You may find your opinion carrying more  weight when your supplier gets ready to redesign or upgrade the product you purchase.

The next time you have a problem that seems unsolvable, pickup the phone and run it by your #1 supplier.

It can be a win-win situation for both companies.

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Have A Down Payment Pricing Policy To Speed Up Cash Flow

June 29, 2010

by Doug Smith, President, The Woodhaven Group

Does your business perform a unique service or make a custom-made product?  If so, start including a down payment requirement when quoting a price for services or products.  This will dramatically speed up your business cash flow.  Combine this with extended terms from suppliers and that line of credit at the bank may not be needed.

Many companies are reluctant to ask for a down payment out of fear that it will upset the customer.  Our society has trained customers to expect to pay a down payment when purchasing certain products and services.  Most consumers would expect to be asked for a down payment when purchasing a home or car.  Unless your business is a retail transaction in a store where the customer gets the product immediately (ie:  restaurent, drug store, oil change, etc.), then try this tip and see your business cash flow take off.

It should always be a policy that any custom product or service  should require up to 50% down payment.  These funds early in the transaction can be used to offset materials & labor, marketing, and sales cost.  Or, just put the cash in your bank account and earn interest.  By receiving a down payment it also shows commitment on the part of the buyer.

Examples of a few products or services that should be getting up front down payments are:

  • Landscaping projects
  • Website design
  • Home or commercial remodeling of any kind
  • Caterers
  • Interior decorators
  • Direct mail design and production
  • Tailoring
  • Machine shops
  • Excavation
  • Dock repair or replacement
  • Mold remediation

Always make sure a complete purchase order or contract is signed by both parties spelling out the contract price, amount of down payment and balance owing so there is no misunderstanding at the end of the job how much the final payment will be.

Put this pricing policy in place today and watch your business cash flow immediately increase.

Key Supplier Relationship Will Increase Cash Flow

May 3, 2010

by Doug Smith, President, The Woodhaven Group

The relationship between a key supplier and customer can be like family.

Executed correctly this relationship can profitably grow the sales and profit of both companies.

As you become more important to your supplier here are a few tips that can act as a guide to increase the amount of cash available for you to grow your business:

  1. Ask for and get extended terms on each invoice.  Once established you should not have to pay the same terms as a new customer of your supplier.  If 30 days is normal then ask for 60 day terms.
  2. If you have inventory make sure your supplier exchanges slow-moving inventory units for what is being used or sold the most.  This should be done a minimum once every 6 months, preferably once per quarter.  In some industries it makes sense to do it once per month.  Show future sales projections so your supplier can justify taking this action. 
  3. When the above inventory is returned make sure there is no restocking charge applied.
  4. If your business is seasonal, you may want to negotiate paying less during the slow months and more during the busy months.
  5. Have your supplier fund the purchase of a major capital item you need to buy to grow your marketshare. This may be a new piece of equipment needed in your manufacturing facility that will allow you to be more productive.  The payment can be spread over a multiyear term with a small amount added to each unit of inventory purchased from your supplier.
  6. Once you have become a major customer or “partner” of your supplier negotiate putting the key items being bought on consignment in your facility.  This inventory remains on the books of your supplier until you are ready to “pull” them for use in manufacturing.  Only then does the terms begin on your invoice.  If you combine consignment with extended terms then your cash flow really explodes.  To properly execute a program like this requires the use of security agreements and physical inventories but the cash savings is worth it.
  7. Negotiate additional advertising coop and simplify how it is processed.  Many companies offer a marketing rebate or credit to their best customers but then make it almost impossible to get due to extreme rules and regulations.  If possible, agree in advance on an advertising coop amount and deduct a fixed amount each month from invoices.  At the end of the year you can reconcile any differences.
  8. Ask for a price decrease.  You may be surprised how often a supplier will grant this wish to a major customer.  They realize the cost to acquire a new customer is high and realize your increased margin dollars over time will make up for a 2-3% drop in price.
  9. If you cannot get a price decrease, then get an agreement that the price either will not be increased or will be increased only by no more than a certain percent for a specific period of time.
  10. Regardless how great the relationship is and regardless how many concessions you are given, you need to still periodically compare prices in the market place.  If not locked down  prices can start creeping up.  There should be an understanding in a good relationship that you are always getting the best price possible.

Suppliers can be a great source of cash flow.  I have successfully used every one of the tips mentioned here.

A lot of the cash or money used to grow your business can come from well executed cash flow strategies.

This is one of them.