How is my Business Affected by the Ever-changing External Marketplace?
Written by the Controller | CFO Advisor Team
There is an old adage that if you are running the business the same as the previous generation did, then you are probably not operating efficiently. Certainly, technologies have changed, and many businesses have adapted to this improved automation at some level. However, there may be more to review than just adapting to the latest business technology trends. Changes in the external marketplace must also be considered, such as a situation where the company needs to implement shorter production runs. A business owner must always take the pulse of the external environment and measure how it impacts their business. Businesses must also address changes that impact the key supplier base as well. They must react to commodity price changes and protect themselves in regards to to open quotes and orders.
Gradual changes occur in the marketplace that may affect the business’ operations. For example a customer’s “just in time” inventory approach may require shorter lead times and smaller production runs. The business is then faced with additional set-up costs or carrying larger inventory quantities. In either case, this adds to the costs of the operation. This erosion in profitability can occur without notice if appropriate trend analysis is not performed. Trend analysis enables a company to note changes over a period of time. Another useful tool is common sized financial statements. Common sized financial statements are presented in a format where each cost/expense is shown as percent of net sales , to concentrate on underlying trends by eliminating from the analysis changes in dollar figures caused by growth or decline. A small business owner must recognize these trends and respond in an appropriate fashion.
In this current business climate many small businesses face pricing pressures from customers. Small business owners are challenged by increasing domestic and foreign competition. While costs for materials and labor rise, demands for lower sell prices drive revenue down. Price erosion is commonplace and impacts a company’s profit margins. In this ever changing economy, companies must continuously improve upon operating processes. Reductions through efficiencies are paramount to profit survival. Trend analysis and a continual review of business costs will highlight these to the business owner. Small businesses must search for ways to lower overhead and product costs.
BIK’s outsourced Controller|CFO Advisors can prepare a trend analysis for your company, to highlight any operational issues that should be addressed.
The BIK Controller|CFO Advisors:
Tony Battaglia
Tim Beck
Al Knox
Larry Schmitt
Mark Stricker
Together we can perform a variety of accounting and financial services to help your business run more efficiently and economically. Our objective will be to improve your bottom line through better processes and procedures. Contact us today at cfoservices@bikcpa.com or call 847-281-3209.
Visit our web-site at www.bikcfoservices.com.