A business with enviable stories of year-over-year growth mostly coming from a who’s who of large, well-known companies. The business owner sensing an opportunity become a market driver in his industry had a problem to overcome:
Cash flow had only gotten worse as the business has expanded, and the lack of cash was threatening the future of the company.
Large companies are not always what they pretend to be…
Yes, the presence of large companies on your company resume will have influence as you leverage their names to generate more business. Not readily apparent however is that many of these corporate giants demand suppliers extend very favorable payment terms. As the case here, our owner commonly had receivables extending past 60 and 90 days. Something had to be done.
You cannot lose sight of the fundamentals when structuring your deal…
Seventy percent of our owner’s new business was coming from four well-known local companies. All four companies insisted on payment terms greater than sixty days with one of the four receiving 90 days. Because payments were protracted, our owner had paid better than $100,000 in line of credit interest charges to meet his obligations. Clearly, an unsustainable business strategy as the company grows.
The corrective action…
Auxilium, working alongside the business owner demonstrated the extent to which these large companies were impacting cash flow, profitability, and the owner’s compensation. Jointly, the business owner and the Auxilium AFE decided to change the customer blend of large versus small customers. Rather than a mix 70% large and 30% small, the new blend became 20% large businesses and 80% small. More importantly, receivables which peaked at 70 days, now run slightly longer than 40 days.
Our owner feels more satisfaction as he now enjoys the benefit of attracting new business with the marquee names of local respected companies but doesn’t mortgage his company’s continued growth and success on those same large companies that demand protracted payment terms. Today our business owner rarely goes into his line of credit, his profit margin has grown by 6% and he now makes triple what he previously paid himself.
“ I couldn’t figure out why with more revenue I wasn’t taking home more money. I was also tired of large companies treating me as if I was their banker, prepared to extend them credit.”
The business owner of an IT services company was faced with a conundrum: Revenue had been steadily increasing year-over-year, but profits were increasingly stagnant and now showing signs of decline. The owner concerned about his future began evaluating his options.
You can grow your way out of a profitability problem…
A fallacy our owner finally came to realize. After years of believing more revenue was the key to changing a profit problem our owner came to realize that revenue is revenue and profit demands a focus and discipline all its own.
The cost of generating revenue has got to be managed…
Our owner was able to deliver his advisory service at an acceptable margin, his problem was his marketing and sales campaigns were prohibitively expensive for the results the company was generating. Between social media investments and sales expense related to the chase of prospective clients, overhead was well out of control.
The path to sustainable growth and profits…
Working with the Auxilium affordable fractional executive (AFE), the business owner began to see where his revenue pursuit was dampening profits and left unchecked could threaten the continuation of his company. Together our AFE and business owner recalibrated the company’s growth and profitability strategy based upon better prospect targeting, making adjustments to marketing investments and training sales executives to increase their odds of success.
Our business owner has grown by better than 20% in each of the last three years. Profitability, as expected, improved after making the necessary changes, net margin increased from less than 3% to better than the industry standard 25% now. As important, cash flow is no longer an issue largely due to our changes.
" I would rather own a very profitable 5-million-dollar practice than a 15 million practice that struggles to be profitable.”
A technology service provider with sustained year-over-year growth faced eroding revenues due to changes in their primary industry and services segment.
The business owner sensing the potential of declining revenues had a problem to overcome. Income sources and sales forecasts from their traditional product and services mix were impacting profit margin and threatening the future of the company.
The technology services sector is in a constant state of change
As the rate of new technology innovation continues to increase keeping up with and adapting to that change drives many small business service providers to change their product mix, sales strategy and delivery models.
You cannot lose sight of the fundamentals when adapting to change…
Although our client had built their business and had sustained growth over the last 10 years margins were eroding and keeping up with onboarding new products reduced the time the leadership team was able to dedicate to sales and operations management. The profit reduction was over $200K per year.
The corrective action…Auxilium, working alongside the business owner provided an assessment of the current product mix, revenue and profit per sale, marketing, sales and solution delivery model. Once that assessment was completed we developed a new sales and marketing strategy and execution plan to address these changes. In addition we met with their vendors and developed a new product and services onboarding model which has reduced their effort and delay in bringing new products and services to their client base.
The Result…The business owner now has not only replaced the $200K erosion in profit margin they now have a sustainable growth plan which has allowed them to expand their business and add to their administrative and operations team which provided better client retention and experience.
“ I was having a hard time keeping up with and adapting to constant change and the evolution of new products in my industry.”
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