Advice for CEOs

In a prior blog post, we looked at 10 areas your business could save money. We looked at four of them in a little more depth: legal, banking, insurance, and audit expense reductions. Now we turn our focus to freight costs. The term “freight” includes a wide variety of costs: inbound and outbound, domestic and international, and all sizes of shipments that your company sends--from an envelope to a full container.

Perhaps the most important rule of business is that maximizing profits requires increasing revenues while reducing business costs. Simple enough to say but difficult to implement especially when you are an emerging growth company (such as our firm, Newport Board Group, specializes in advising) and you lack strong pricing and purchasing power. As revenues increase, the tendency of businesses is to add workers, acquire new technology, and increase inventories. However, many companies grow themselves out of business by diverting cash into fixed assets and inventory investments in anticipation of expanding sales.

In an earlier blog, I presented a general approach for manufacturing companies to reduce costs. I would like now to apply this approach to specific areas of corporate expenditure, starting with legal costs. This is a good place to start because making changes to save money on legal costs tend to be less disruptive than other kinds of cost reduction. Most middle market companies use a national law firm or at the very least one of some size. This usually makes sense. If the company gets involved in litigation, patent work, IPO or corporate organization it is helpful to be represented by a firm that has specialists who can address a wide range of issues. Big firms have high overhead and their billing tends to look as follows:

One objective of middle market companies that never changes is to constantly reduce their costs and thereby improve their bottom line and cash retention. Manufacturing companies need to take a different approach to service provider costs. Here’s how.

In earlier blog articles I have looked at issues confronting earlier stage and middle market companies as they traverse what Doug Tatum, our firm’s Chairman, called in his book of the same name: “No Man’s Land.” This is the phase of corporate evolution in which companies are too big to be small and too small to be big.

In a previous article I discussed the pressure that a business’s growth--even profitable growth--puts on working capital. Companies generally need to step up their capacity or infrastructure to support their ability to deliver the goods and services they sell-- well in advance of receiving the revenue that will come from a growing base of sales.