Do Business Well

At some point you may receive a bill for legal costs that seems staggeringly out of proportion to what you had originally envisaged. Unless you keep a close watch on the situation you may find that, having put a certain matter into the legal system, the various aspects that can be pursued soon add up to a heavy bill. Having started on this process, it may become difficult to back out, with the result that, what was at first deemed to be a fairly minor exercise develops into a campaign, each stage of which incurs more cost.

So, we should judge the merits of taking legal action or of using the services of the legal profession in the same commercial way that we would purchase other goods or services for the company. Unfortunately we don’t usually do this because we just don’t know what is going on behind the legal scenes. Consequently, we tend to accept professional charges as being fair for the job carried out, relying on the solicitor or lawyer to invoice according to the time and costs he incurs on our problem. Continue Reading »

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13. Eliminate unnecessary partitions

Factories and offices, particularly old ones, often have too many nooks and crannies, cubby holes and partitions. The more of these there are, the less visibility there is of personnel, stocks, machinery and production in general. Partitions and walls take up too much space.

14. Re-allocate space per department/function to save money

Work carried out by separate departments could be merged following physical re-allocation of work areas. For example, a combined despatch/goods inwards department could be less costly.

15. Dispose of obsolete items

Storing obsolete items in the stores and on the shop floor takes up costly factory and warehouse area. Continue Reading »

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1. Control the size of the establishment

Large-scale production brings certain economies with it especially in times of stability or growth, but in periods of retraction large-scale facilities can be too costly. Ensure that establishment costs are affordable for both high and low levels of activity.

2. Assess the minimum/optimum establishment size for your present activity level

Firms often work with facilities which have grown over the years as demand has developed. But are they what you really need now and for the future? Assess your ideal facilities objectively and compare them with what you have at present; you will at least have a picture of the changes you might make. Continue Reading »

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BOOK VALUE

Each month or quarter you should be determining the company book value. This is the net worth figure on your financial statement. It’s the difference between your total assets and total liabilities using all the rules of accounting and taxation. As you’ll see, this has very little to do with the actual worth of your company.

LIQUIDATION VALUE

You would only rarely want to sell a successful business for less than liquidation value. You might do so to provide continued employment for loyal staffers, or some types of deals might include your continued employment or the receipt of certain royalties unrelated to the sale price. You arrive at the liquidation value by adjusting each asset to take into consideration its real value, as opposed to its book value. Next, you adjust liabilities to account for any amounts that aren’t going to be realized. Finally, there’s a cost of liquidation. Let’s look at all three for some examples: Continue Reading »

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4. Warranties/repairs: Who will provide ongoing service?

One challenge faced by smaller companies, particularly makers of products, is persuading the prospective buyer that they will be around for the long term to provide ongoing service—repairs, replacement parts, and updated products. The business plan must address the issue of ongoing service, both to determine its exact form and to allow for the costs of providing it.

The first concern that typically arises is that of a warranty. How complete is the warranty and how long should it extend? That is, does the warranty cover parts and labor, or just parts? Does it extend for six months, one year, or two years? Obviously, the more complete and lengthy the warranty, the more costly it will be.

Warranty decisions should be driven by factors similar to those that determine price—how important the warranty is to the market, what competitors are doing, how the costs come out. Concerning costs, providing in-house labor may be very expensive, whereas subcontracting out repairs could be much less costly. Continue Reading »

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2. Price: High enough, but not too high.

Pricing is one of the trickiest areas of business for small companies and major corporations alike. An inexperienced manager might suppose that simple formulas exist for determining price—say, a certain multiple of costs.

Certainly you can begin calculating a price range as a function of your costs. Indeed, your final price must provide a substantial enough margin over your costs to allow for taxes and profit.

The issue of price is a controversial one business school professors disagree over which factors are most important h determining price. The reality is that price is a function of several interrelated factors: Continue Reading »

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Do you plan to hire a sales force? Or use sales representatives? Or telemarketing? Or direct mail? Or retail outlets?

The answers may seem self-evident, based on your past experience or your knowledge of your industry. Celestial Seasonings sells its tea through supermarkets and other food retailers. Pizza Hut sells its pizza through freestanding fast-food restaurants. And People Express (now part of Continental Airlines) sells its tickets primarily via travel agencies, airport ticket counter locations, and over the phone.

Increasingly, though, creative entrepreneurs are looking for alternative sales approaches. Thus, a Boston-area maker of stereo products decided to avoid the traditional retail outlets and sell a new compact stereo system door to door with its own sales force. The firm avoided the crowded retail shelves and kept margins higher than discount-minded retailers will allow. A number of distributors of women’s clothing have been extremely successful selling via direct-mail catalogs rather than through traditional retail boutiques. And Home Shopping Network became very successful selling traditional department store goods through a nonstop television show. Continue Reading »

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Disadvantages

Retailers have been slow to take up e-Retailing. This is to some extent under standable in the light of the many disadvantages and problems. Retailers, for example, may lack the technical know-how, the substantial investment required or the order fulfilment capabilities. Set-up costs start from around £20,000 fo a small site, up to £500,000 for a large operation. And set-up costs are only th start: Datamonitor estimates that high street retailers are spending more o ongoing costs than on setting up new sites.

DISADVANTAGES OF E-RETAILING FOR RETAILERS

* May lack know-how and technology

• Substantial set-up, investment and ongoing costs

* Complex logistics of fulfilment

• e-Selling less powerful than face-to-face — uptake slow for goods selected by taste or smell

* Fewer impulse purchases

* Legal problems

Less role for traditional high street retail expertise

• Pressure on margins and prices in-store

* After-sales care difficulties

There can be legal problems. For example, if purchaser and supplier are ni_l
different countries, there may be conflict between the laws of the two countries.’
A further disadvantage is that e-Selling is less powerful than face-to-face selling

(it is easier to say ‘no’ to a computer). This viewpoint is linked to a concern of raditional high street retailers that e-Retailing offers a diminished role for their expertise. For example, there are obvious difficulties with products sold by `atmosphere’ — touch, feel, smell — and with impulse purchases. In addition, consumers have a perception of lower prices online. This puts pressure on margins for e-Retailing, and can lead to shoppers expecting consistent low prices in store. Finally, after-care can be difficult, especially if the shopper is overseas.

Continue Reading »

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