A L Bean & Company

September 7, 2011

Hurricane Season – Lessons for Businesses

Filed under: Consulting,General,News — artlbean @ 8:12 am

Businesses are constantly faced with the challenges of simply meeting monthly business goals and ensuring there is sufficient cash on hand. Planning for your success can be fun but also comes with challenges. How do you make credible financial forecasts and reasonable new customer projections? That being said, what about planning for the possibility that some low probability event will occur that totally disrupts the business? I would bet that many businesses that were impacted by Hurricane Irene had planned for a lot of things, but didn’t plan for the likely event that they could not operate for days or even weeks. Disasters like Hurricanes and other events often kill businesses.

Business Continuity Planning
We have seen businesses that have lost critical data, equipment, inventory and facilities due to disasters such as tornadoes, fires, power losses and others. In most cases, planning for businesses should also involve disaster recovery planning or business continuity planning. Though these terms are sometimes used interchangeably; the term Disaster recovery planning involves recovering your business or IT systems quickly after a disaster occurs. Business continuity planning involves identifying your organization’s exposure to internal and external threats and planning how you will operate if one or more of these threats become reality.

Insurance can help make businesses whole after a disaster, but it may not solve the real issue. The real issue is that customers did not receive their products or services. If an insurance company writes you a check for the loss, what about the fact that customers may have found an alternative, and may no longer see your business as the best solution? Yes, insurance should be bought, but plans should be put in place to ensure the business is still viable after a disaster.

This is where a business continuity plan (BCP) comes into play. A business continuity plan addresses how the business will operate if critical resources have been lost; such as IT systems, facilities, power and others. Businesses should be able to address these issues to ensure survival regardless of the situation.

A recent story regarding how Waffle House prepares for these events discusses this issue. Restaurants are often open quickly after a disaster. Waffle House has plans and resources to address these issues, which allows the stores to often be the only restaurant open after a Hurricane or other storm occurs. The company decided to beef up its crisis-management processes after Hurricane Katrina. Senior executives developed a manual for opening after a disaster, brought in portable generators, bought a mobile command center and gave employees key fobs with emergency contacts. A BCP addresses these items and more. Subsequent articles addressing BCP will be posted shortly. If you have questions regarding BCP for your business, please contact A. L. BEAN & Company.

June 11, 2011

Managing Small Business Cost Structure

Business owners have to wear several hats, and all are important to running a successful enterprise. The Finance hat should be given a considerable amount of time, considering that cash flow kills businesses more than any other reason. For many small business owners, managing costs is arguably at the very top of the priority list. There are two types of costs to consider and we discuss them in this article.

When considering managing costs, there are two primary types of costs that should be given attention: Fixed costs and variable costs.

Variable Costs
Variable costs are the expenses that go into making a product or providing services. For example, variable costs for a restaurant are food items purchased for resell. Variable costs include inventory items, hourly direct labor, shipping expenses and others. These costs will go up when sales are high and down when sales are low. Business owners should take a lot of care in managing variable costs, because they directly impact the quality of your product or service. Simply finding the lowest cost may not be the best strategy though. For example, a high-end retailer like Saks Fifth Avenue can’t sell low quality items and expect to stay in business. The items cost less, but will have an inferior quality. Therefore, a higher cost can be justified. Wal-Mart can sell low cost items, because its business strategy is to offer low priced items. We don’t go to Wal-Mart to purchase an Armani shirt. Companies spend a great effort managing their supply chains to balance cost with quality.

Fixed Costs
Fixed costs are expenses that are stable over time. These are costs that are generally the same or similar every month. Examples include rent, lease, interest, certain utilities, internet, etc. Business owners should keep these expenses as low as possible. High fixed costs can destroy a business quickly. These costs do not fluctuate with your level of sales, so they are there whether you have banner year or a horrible year. Your business has to cover these costs regardless of how well business is going. Keeping these costs at the lowest possible level will allow you to weather a storm such as the current slow economy. Many companies with high fixed costs are really struggling right now, as they have really high expenses and few sales. Some businesses have high fixed costs, as this is the nature of the business. Businesses that require large and expensive equipment to make a product would be an example. Businesses in this category should still attempt to keep fixed costs as low as possible, though they may be higher than many other businesses

Gross Margin
Of course, sales pay for expenses. As long as variable costs are lower than the sales price of items, a business has cash left over to pay for fixed costs. Will a business have enough though? This is why getting fixed costs to an optimal level is extremely important. Many companies have cost variabilization strategies for their cost structure. In essence, the idea is to increase the percentage of costs that are variable versus fixed. This allows them to weather a long period of low sales. It also may be the best strategy to compete in their market.

January 23, 2011

Business Plans and The Importance of Research

Filed under: Consulting,News — Tags: , — artlbean @ 12:48 pm

Performing extensive research for a new business can’t be emphasized enough. Research the market you plan to sell in. For example, if you plan to start a business in Houston, research the business climate, the economy, the types of businesses that do well in that market, etc. You have to understand your businesses potential in that market.

Develop a marketing plan. Research the most effective marketing strategies for the type of business you are opening. Certain types of marketing are more effective for some businesses than others.

Research your product and your potential competitors. Determine your customers’ likes and dislikes. This may give you a competitive advantage over your competition. From our experience, a lot of NEW business owners do not understand their customers very well. Older and successful business owners understand their customers enough to project the potential loss of customers if they raise prices. You should understand how important price is to your customers. Also, determine how important service is to customers. If you are offering a low-cost commodity type product, customers may not expect Mercedes type service. Your job is to determine expectations and make sure you meet
or exceed your customers’ expectations.

In this economy, it is also important to determine how your industry responds to poor economic conditions. In a former article we discussed cyclical versus non-cyclical businesses. Cyclical businesses will experience a tougher time in an economy like the one we have today. Therefore, determine where your business will be positioned.
There is no way to cover everything you need to think about in this article. There are several things to think about in starting to your business in poor economic times and we encourage you to call A. L. BEAN & Company for other ideas.

September 24, 2010

Re-Charging Your Non-Profit
Re-Charging Your Non-Profit

Filed under: Consulting,General,News — artlbean @ 7:09 pm

It is no secret that when an economy struggles, wallets are often closed to non-essential items. People are focused on their own survival and often times the Non-profit community is overlooked in the area of financial support. In my conversations with Non-profit clients and other Non-profit entities in the community, there are certainly less funds to go around. Many corporations have scaled back on making charitable contributions as well.

Non-profit Boards are challenged with moving the organization forward, but conversations that focused primarily on strategy are starting to be taken over by conversations focused on budgets and fund raising. While budgeting and fund raising have always been a major part of a Non-Profit’s efforts, the percentage of time strategizing about ways to get more funding has increased for many organizations. Less money is out there to go around.

Whether running a large or small non-profit, it is now time to re-think your fund raising efforts. Many non-profits are suffering from visibility. According to the National Center for Charitable Statistics (NCCS), there are currently over 1.5 million non-profit organizations in the United States. That being said, there are a lot of organizations that depend on charitable donations as a major source of funds to operate. Most organizations simply are not well known. This creates a major disadvantage in acquiring funds. People tend to donate money to organizations they are familiar with and/or have some kind of tie. For example, people that have family members or friends that suffered from Muscular Dystrophy are more likely to donate to MDA, which supports that cause. Many people simply donate to United Way to make sure they are giving back to the community. If a Non-profit does not receive United Way funds, the organization has to be a little more creative than organizations that do receive funds.

Non-profits are now finding more creative ways of making the community aware of their organizations. From holding events that draw more interest than in the past, to developing a stronger network of potential donors, some non-profits are getting creative. Also, organizations that are developing stronger ties to the media have seen some successes. Holding a fund raising event or program can be more successful if an organization gets television and print coverage. The key is to make the community aware the organization exists. Making sure potential donors are aware of the cause is the first step. Step two is making sure they develop a strong enough passion for the cause to make a donation. This is not always an easy task.

Our experience also shows that in the current economic environment, non-profits with Board members that have strong ties to potential large donors may be doing better than others. In these times, a strong Board is extremely important. The development staff is critical, but a strong Board can make the difference between meager donations and truly meaningful donations.

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