Challenging Economic Times Drive Positive Changes

By: Scott Thompson, Vice President Sales and Marketing

Being in business challenges us in many ways. Issues like raw material sourcing, hiring and training good employees, competitor’s actions, etc. are issues we face year after year. The tough economic times we had over the past few years have added even more complexity to successfully running our businesses.

A slowing economy drives down selling prices and volumes. In turn, margins begin to shrink. Accurately tracking and measuring your costs is an activity that should be performed by all businesses. We are all aware that profit is driven by the gross profit margin made on each sale, and not by the annual volume alone. When your costs go up or your selling price goes down, the products you offered that were low profit to begin with, may now be actually losing money. By knowing your accurate costs, you will be able to divert limited resources to more profitable products or adjust your selling price.

How credit is extended during these times should also be reviewed. More and more, even good paying customers are extending their payment terms. Accounts that were “slow-pay” are even slower to pay than in the past. Many companies have lowered credit limits and tightened terms to “slow-pay” accounts.

Raw material sourcing is a critical activity that impacts profitability as well as product quality. Companies that have been in business for any length of time have their traditional methods of sourcing raw materials. Today’s economy not only has limited the availability of those raw materials but has caused cost fluctuations that have significantly impacted companies’ annual profitability. That cost impact has driven many companies to dedicate more talent to raw material sourcing and find creative ways to try and secure those raw materials long term. In addition, practices have changed in terms of how raw material costs are measured and communicated. Those cost fluctuations need to be calculated to the pricing models, in short order, to assure margin is maintained.

Even though the economy may be showing some modest improvement in 2010, we all will have our fair share of business challenges. The challenges that we have faced and met successfully over recent years have made our companies stronger and better managed.