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Business Confidence may be returning… for some people it never left!
I would like to share with you an inspiring ‘real life’ story of one of CAD Partners clients who has experienced phenomenal growth in the past four years. While many businesses were struggling, there are a series of clear strategies that contributed to their success.
The client is a clothing designer and manufacturer operating in a regional area with young management. Their annual revenue has grown from $100,000 to $2m over four years with revenues doubling last year from $1m to $2m, without having to take on any more borrowings. They wholesale and retail as well as sell on-line, and have opened a second retail outlet and largely expanded their wholesale market in the past year.
How did they manage this in such trying times? There are several major contributing factors.
Customer Focus and Market Research
Their product is ‘Gen Y street wear’ - a market strongly driven by trends and culture. Our client spends a lot of time gaining an understanding of upcoming trends and what customers want. It’s a rapidly changing market so they have to keep on top of trends or they'll be yesterday's news. This week’s cool can easily be next week’s dusters!
They use on-line social networking sites such as Facebook and Twitter to keep abreast of trends as well as seeking feedback from retail outlet customers. They understand their market and their online habits and have developed a web site which has exceeded all expectations in terms of sales for the past three months. They managed the mammoth task of getting their web site up and working very quickly i.e. they didn’t delay things by trying to perfect it – their sharp focus and previous market research enabled them to just get on with it!
Identification and management of ‘Key Drivers’ in the business
Every business has a small number of ‘Key Drivers’ that impact on performance. These were identified early on with the help of their CAD Partner. Their 'Key Drivers' are:
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Accounts Receivable Days – a lot of focus is spent on minimizing the number of days a customer takes to pay their account. Due to the demand for the product, they have been able to be very strict about credit control. They take security over stock which enables them to recover goods if accounts aren’t paid. They have good systems in place for debt collection. i.e. they don’t wait for a debt to get old – they collect it ASAP.
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Inventory Days – the longer a garment remains in stock the more likely it will end up a duster. They put in place systems for tracking stock usage. They found very creative ways to get rid of obsolete stock. They took the goods to a larger city and hired out a church hall and ran a two day factory outlet sale, which resulted in $35,000 of cash injection – not bad for potential dusters! They use Facebook and Twitter to circulate news of an upcoming sale. They keep a close eye on trends and only buy what they know they will sell quickly.
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Cost of Goods Sold – they found ways to improve their margin by working through the production chain to find savings. E.g. they began by manufacturing goods then progressed to an agent who helped with sourcing from China. As they grew they were able to deal directly with suppliers in China. Due to growth and good cash management they are able to get better buying prices for quicker payment to suppliers. One supplier agreed to a 5% discount for payment within 7 days.
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Retail outlet daily/monthly sales targets – they set daily sales targets for retail sales staff and a bonus system based on them. They’ve been amazed at the impact of this on sales figures. Everybody who walks through the door of the shop is now seen by sales staff as a potential contributor to their bonus – imagine how well they get looked after! The store managers have monthly sales targets to meet and realise the more they can do to support sales staff the better their bonus will be.
Sound Financial Control
After reading the above you might think all this success could go to their heads. Not so! They have kept their feet firmly on the ground and like all successful entrepreneurs - their eye on the future success of the business. With our help they have closely managed overheads and not let them get out of control. They have been disciplined about their own takings out of the business. They realise raiding the piggy bank could have a detrimental effect on the ability of the business to keep growing.
Sustainability is their goal. They set budgets and monitor them. They have outside help from a CAD Partners CFO On-Call as their guide along the tricky path of growing their business. We began working with them four years ago on a bi-monthly basis and now visit them weekly to ensure their financials stay on track. Their CFO On-Call helped them navigate the fickle world of currency fluctuations and advised them to take forward cover on US dollars. This alone has had a massive positive impact on their buying price of goods.
Planning – short and long term
They take a longer term view of their business. They do very detailed planning for the next 12 months and then run it out for a few more years based on sales targets. They plan capital requirements and cash flow needs and their only borrowings are from family and they were able to pay off bank borrowings early on after the business got up and running. Having such a low level of debt has enabled them to focus on building their business without the usual credit-induced pressures.
Understanding of their own limitations and willingness to seek outside help
Being young and having a good understanding of their market is a huge benefit. They realise their limitations in terms of financial management and have been willing to get outside help. They're open-minded and ‘teachable’, with a great understanding of the concept of team work. Their success has been so inspiring to be a part of and CAD Partners – CFO On-Call has several stories just like this one.
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