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When you're balanced, you can grow.

I got a call from a prospect who was referred to me. At our first meeting, the prospect told me he needed to increase sales volume because he was not making any money. Sales were flat and he was convinced that a hard-hitting marketing program would solve his problems. His request should have sounded like a sweet melody to a marketer's ears!

After listening to some of his other concerns, I asked to see his most recent financial statements. The prospect hesitated. "What do my financial statements have to do with a marketing program?" he asked. I replied that he had also mentioned that he was missing cash discounts from his suppliers and their terms were mostly C.O.D. "We need to look at your statements to see if you are really in a position to grow sales volume," I stated carefully.

He produced his most recent statements. A quick look, along with some additional questions, indicated that the company was technically insolvent. Payables were overdue, receivables were running behind terms, and inventory turns were well below normal. All lines of credit were topped out and there were no immediate sources of new capital. Cash to support more marketing and sales was just not available. 

I looked my prospect in the eye and said, "Your financial situation is badly out of balance. In your case, an increase in sales right now is the last thing you need! If we were successful, your receivables would increase, your need for cash to pay suppliers would increase, and your inventory needs might also increase. We should work on getting your company back in balance first, then look at more effective sales effort." That was the last thing my prospect expected to hear from a marketing consultant!

We worked together to build a plan to simultaneously attack the three factors that impact profitability, namely contribution margin, fixed expenses, and sales level. With a clear understanding of the root causes of the problem, we worked to improve collection of past due receivables and build cash. We worked to reduce the number of suppliers and leverage the consolidated purchasing volume to gain lower buying prices on major lines. We studied each fixed expense line and searched for ways to reduce any leakage. For instance, we negotiated better insurance rates and later refinanced the mortgage on the facility with a different bank at a much lower rate. Without spending any significant money, we increased efforts on retail sales with higher margins and selectively raised prices on slow moving items. We reviewed inventory and sold off more stock to gain cash. Taken together, small improvements in each factor improved the firm's cash position and as we became current with suppliers, the cash discounts again enhanced overall margins. The picture brightened considerably!

When you're balanced, you can grow. If marketing gets ahead of finance, or physical operations can't deliver on what marketing promises, you have to regain the firm's balance before you can sustain long-term, profitable growth. Conversely, when a firm is in balance, it's time to look for ways to leverage that solid foundation with new marketing initiatives. That's why I recommend a holistic approach to marketing consulting. You need to understand the whole business situation before embarking upon an aggressive marketing plan.

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► Business is tough these days. If a man does something wrong he gets fined; if he does something right he gets taxed!

Morgan Marketing Solutions, Inc. rpmorgan@morganmarketingsolutions.com phone:  972-931-7993

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