Viewing “Labor Costs” in Business

Post Labor Day, a question for Entrepreneurs – how do you view your labor costs (employees)?

Are they a cost of doing business for you as they decrease your bottom line? When cutting expenses, is that the first thing you think of reducing?

For large labor intensive operations, this might be the case. However, Entrepreneurs might want to view this differently.

If you train your people properly and motivate them adequately, your employees could actually improve your bottom line by increasing revenues, improving productivity or even reducing costs.. View your employees as assets – invest in them to get better results.

It takes a different mindset to get the best out of your people. If you think of them as labor and an expense, then chances are that you don’t always get the most out of them.

Do the Right Things! Invest in your people and help them add to your bottom line.

Ravi Patel

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Published in: on September 5, 2018 at 4:30 am  Leave a Comment  
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What Drives Your Revenues?

While it is a cliché – in order to help a hungry man for the longer term one teaches him how to fish rather than giving him fish – it is a useful learning idea for Entrepreneurs.

For Entrepreneurs to be successful they should not only focus on increasing revenues, but should more importantly also improve the processes that deliver those revenues.

Entrepreneurs might be able to increase revenues in the short-term by doing it themselves. However, in order for revenues to continue growing for the longer term and through other people, they need to establish and keep on improving the processes that generates such sales.

In order to do so, they first need to understand the processes, improve them as necessary and then ensure they are repeatable with no lapse in quality. Documenting the procedures, training the people and monitoring compliance are necessary to implement robust revenue-generation processes.

Determining the drivers of your revenues is a critical first step in improving and enhancing the revenue stream.

Do the Right Things!

Ravi Patel

www.patelCFOservices.com

Growing Pains

Almost all those in business would welcome growth. However, not managing it could cause growing pains. In reality, managing growth successfully requires thought and is really hard work.

Hiring employees rapidly might indicate that a business is growing. However, if the infrastructure to support the integration of these new employees in the company has not increased simultaneously, it could cause a painful situation for both management and the new employees. Unaccounted or unforeseen indirect costs, such as payroll taxes, benefits and insurance, could adversely impact cash flow. Rapid employment growth might also attract government scrutiny for compliance of labor regulations.

Rapid growth in sales orders is a great thing. Do you have the ability to deliver those orders on time and maintain quality? Do you have an adequate customer service function to handle potential issues?

Fast growth in revenues creates an increase in receivables (unless you are fortunate to have a cash-only business). Do you have sufficient working capital or access to funds to accommodate such an increase or even delays in collections?

While growth is desirable, Entrepreneurs need to manage it carefully to avoid or significantly mitigate the accompanying pains.

Ravi Patel

www.patefCFOservices.com

Dependency is Risky

When starting their businesses Entrepreneurs might depend on one or a few customers for most of their revenues. This revenue concentration scenario is understandable for the very early start-up stage of a company.

As revenues grow, the increase hopefully comes from having more customers rather than only from more business with the same clients. Diversification in the source of revenues is a critical factor in the long-term success of the company.

The risk of concentration of revenues from only a few clients or one or two big customers could be huge. If a significant portion of the revenues are derived from, say one customer, it could be devastating for the company if such business was lost, reduced dramatically, or even if there were payment problems with such receivables.

Entrepreneurs, at the appropriate stage in their company’s growth, would be well advised to diversify the sources of revenues such that dependence on a few clients does not end up hurting their business. Businesses sustained by only a few customers might be following the wrong path.

Managing revenue concentration risk is a critical component of Entrepreneurs Doing the Right Things!

Ravi Patel

http://www.patelCFOservices.com

 

What Drives Your Revenues?

Almost everyone has heard the cliché that in order to help a hungry man for the longer term one teaches him how to fish rather than giving him fish.

Similarly, for Entrepreneurs to be successful they should not only focus on increasing revenues, but should more importantly also understand what drives those revenues. Then, improve the processes that deliver those revenues.

Entrepreneurs might be able to increase revenues in the short-term by doing it themselves. Without knowing what drives revenues it might indeed be short term. In order for revenues to continue growing for the longer term and through other people, they need to establish and keep on improving the processes that generates such sales.

In order to do so, they first need to understand the processes, improve them as necessary and then ensure they are repeatable with no lapse in quality. Documenting the procedures, training the people and monitoring compliance are necessary to implement robust revenue-generation processes.

Do the Right Things!

Ravi Patel

www.patelCFOservices.com

Are you Depending on a Few Customers?

When Entrepreneurs start their businesses, they might depend on one or a few clients for most of their revenues. This revenue concentration scenario is understandable for the very early start-up stage of a company.

As revenues grow, the increase hopefully is from having more customers rather than only from additional business with the same clients. Diversification in the source of revenues is a critical factor in the long-term success of the company.

The risks of concentration of revenues from only a few clients or one or two big customers could be huge. If a significant portion of the revenues are derived from, say one customer, it could be devastating for the company if such business was lost, reduced dramatically, or even if there were payment problems with such receivables.

Entrepreneurs, at the appropriate stage in their company’s growth, would be well advised to diversify the sources of revenues such that dependence on a few clients does not end up hurting their business. Businesses sustained by only a few customers might be following the wrong path.

Managing revenue concentration risk is a critical component of Entrepreneurs Doing the Right Things!

Knowing Your Business Model

How well do you know your business model? As an Entrepreneur have you thought about this question?

One has a successful company as the end result of having a consistently well-functioning business model. An Entrepreneur needs to know exactly how his/her business model works.

What are the key Revenue drivers? Is there a competitive advantage? Are there any barriers to entry? Do you have proprietary technology?

What are the key cost components? Are they well controllable? What costs are fixed and which ones are variable? Is your model labor sensitive or capital-intensive?

What are the other variables that have a significant influence on your model? Distribution? Customer service? Rapid response times?

An entrepreneur has to not only to know answers to the above questions and more, but more importantly he/she needs to determine the sensitivity of each of the components to the whole model. What are the few variables, that have a tremendous impact on the model, if tweaked even slightly could make the model better?

Only when you can fully understand your business model, you can make it better! Do the Right Things!

Ravi Patel

www.patelCFOservices.com

 

Published in: on January 23, 2012 at 5:59 am  Leave a Comment  
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