Resolving the Sales Versus Loans conflict – Materials and Labour

Posted by Baldwins Accountants

Business isn’t a predictable beast.  It goes through good times, it goes through hard times.  This is not good for cash flow, the lifeblood of your business.  Add to this the need to service your loans as they become due and you could be facing a dilemma.  How do I pay my loans, and my staff and my creditors and my other costs?

In this series of articles John White  looks at things to consider in order to pay your loans by asking some fundamental questions. This month we look at materials and labour.

Materials

In any trading business a key cost comes from dealing with suppliers, so what can you do about it?

Well, look at your supplier costs, particularly the top 20% of you spend and ask yourself some key questions:-

  1. Can you get any discount of favourable payment terms from them?  Have you even asked the question?  After all, they have a vested interest in your business doing well too
  2. What about concentration issues?  Do you have one provider for each or any of your key needs?  That can lead to complacency. Look as a panel of 2 or 3.  This can really help you to get the best deal
  3. What are your “must haves” in terms of service delivery?  Does one supplier deliver better than another?  If your supplier service is poor it can lead to your delivery being poor and to lost customers
  4. How many suppliers do you have?  How many do you need?  If there are too many consider a little pruning to keep things manageable but still efficient

Labour

Labour and Staff costs are always a major issue to any business and it is imperative that you achieve good utilisation.

Ask yourself…

  1. How effective and how efficient are they? (Efficiency is getting things right.  Effectiveness is getting the right things right)
  2. How flexible are they?  Are they multi skilled?  Would they benefit from some further training?
  3. How are they incentivised to ensure minimal wastage of time and materials?  Is it ever reviewed?
  4. How often do you review performance?  What are the problems they are encountering?  How can you help them?  Consider an appraisal system (if you don’t have one) and if you already do have one how can you make it meaningful (effective)?
  5. Do your appraisals have SMART targets? (Specific, Measureable, Achievable, Realistic and Trackable).  They can help you identify strengths in your business and (more importantly perhaps) identify areas where some effort at development is needed.  They also make rewarding good performers much easier.
  6. How well do your people know what is expected from them?  How can they be expected to be flexible if you have never told them?

People perform better when they understand why they do what they do and how important it is to the business.  It may be your company, but they have a vested interest in it doing well too.

In the next article we will be looking at overheads and spend.

If you have been affected by issues raised by this article and would like to discuss them on a confidential basis contact John White on 07906083028 or at john.white@baldwinandco.co.uk

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