Savings Go Straight to the Bottomline
What is on the mind of all business owners and managers? What brings many sleepless nights? What signifies success or failure of a company? Profit.
Large corporations have big departments with people who do nothing else but think about how to improve margins, reach out to more customers, sell more products, therefore increasing the company’s profit.
What do smaller companies do to increase their profit? Normally they start focusing on the business aspect that is on the surface: selling. This means producing more products and selling them as fast as possible; maybe hiring more salespeople or pushing the colleagues in charge of sales to find more customers and bring more work to the production. And this is absolutely logical and justifiable; we all know, that that’s how companies grow. And we also know, that it’s not that easy - sometimes the market is down, or your product needs an upgrade to reach other categories of customers, and it takes time to develop it.
It feels like there is nothing you could do in the meantime to improve your cash flow. But this is not the case. When you look around, you will discover a business activity just on the opposite side of your selling - that is your buying. You might say, but when buying I am giving away money, how can it improve my profit? And we want to explain to you how every Euro you save goes directly to your bottom line and improves your free cash situation.
Let’s take a simple example. Every month Company Baum produces and sells 10 wooden plates at 10 Euro apiece. Their Sales worked hard and brought many new customers, and now they need to produce 5 more plates a month. Good news indeed, but we all understand that unfortunately, it doesn’t mean that their profit has just improved by ten times. When we deduct all the production costs, say 7 Euro for wooden plank from a supplier and 1,5 Euro for associated costs, we will see the following result.
Before: 10 (plates) x (10 (Euro) - 8,5 (production costs)) = 15 Euro (profit)
After: 15 (plates) x (10 (Euro) - 8,5 (production costs)) = 22,5 Euro (profit)
Sales brought 50 Euro in additional orders and only 7,5 Euro can be seen as an improvement on the account. And that’s before taxes.
But the Buyers were also working hard and got a deal with the supplier that every tenth wooden plank will be free of charge. Obviously, no additional costs are associated with 7 Euro that has been saved, therefore so the result of their work is the following.
Before: 10 (plates) x 7 (wooden planks) = 70 Euro (spend)
After (before Sales brought new volume): 10 (plates) x 7 (wooden planks) - 7 (free plank) = 63 Euro (spend)
Purchasing brought savings of 7 Euro and exactly 7 Euro went back directly to the account, or if you prefer stayed there. And these 7 Euro are there even if sales failed and didn’t manage to bring more customers and more orders.
Of course, a combination of successful buying and selling is what will bring your company forward. And while you must rely on yourself in terms of selling, you can rely on #EoS4U when it comes to buying. We are here to save the money you are spending with your suppliers so that you can your cash situation could improve even if your growth is a bit delayed.