Squeezing every cent from every dollar...
Within the last year I was promoted to VP of a small production company. I worked my way up from creative and have no formal business training whatsoever. My boss, who founded the company, was trained at a film school and has been learning the small business side little by little each year. We have a great, creative company with a solid team... but our practical business skills are mediocre.
Financially we had one of our best years yet... but it I get the "spidy-sense" that this year will net less profit as clients slow down and the market tightens up. Managing finances and maximizing profit on projects has been the company's weak link, and has been the hardest area to implement change.
MY QUESTION: What are some internal changes that you have made (or can be made) in a small business to help maximize profit? This can apply to either the media industry or just small business in general. Practical "tricks of the trade" would be most appreciated...
I am always an advocate for not buying gear that's cheaper to rent only as needed. If you use it enough that rentals would cost more than the item, then buying might make sense.
First, I couldn't agree more with Mark's suggestion. One of my operating principals has always been to not buy anything until we absolutely need it. We also delay updates to new versions of software packages / suites as one means of spending only when we've got it. New features are cool, but not always necessary right away.
Second, it may seem a bit obvious, but... one of the best ways to protect the bottom line is by paying a lot of attention to pumping up the top line (gross sales).
How much are you doing to keep in touch with current and past customers? The holidays provides a great excuse for sending out gifts small and large. We routinely do a different promo piece each year that ends up costing us $3,500 to $4,000 by the time the item, the packaging, the wrapping labor and postage are figured in. It goes to 150+ of our customers as well as a few key suppliers. Why? Because it helps keep us top of mind and that's always good for the top line.
I think you need to lay out where the weak links are in your business.
Do you have customers who go beyond 30 days to pay?
Do you rely on credit cards for purchases?
Do you have to make payroll regardless of incoming work?
If so, can you cut an employee?
Do you use an accountant to balance your books?
How much time do you spend soliciting new work?
How much repeat business do you get?
Do you bill by the hour? Are you accurately billing?
A lot of the "business acumen" of running a small business comes from years of experience and making some mistakes, but also having a solid plan for the future and someone to implement that plan.
Do you have a written business plan. Even though it sounds like this is an established business, doing things the same way as they have always been done can catch up with you.
Maybe, as VP, sit down yourself and try to write up a document with how you currently do things, and then cull your "best practices" from that with some goals for improvement, then share that with your boss.
Sometimes it is difficult to look inward.
Looks like we could be in for a bumpy ride in 2008. Time will tell, but the indicators point that way. We are doing some basic upgrades...we also had a pretty good year and with the FC Studio upgrades and buying three CS3 suites we spent a lot on software.
Real glad we found a rental space that includes all utilities.
I guess it is having a good forecast to what your clients needs will be, if there are good prospects on the horizon, and a general sense of how you are viewed in the community.
I personally think there are ways to get to the top of mind of your clients rather than spending $3000 on a personalized promo piece. Depends on the market and your client list.
Got a good accountant? Ask him/her how you are doing and what steps you can make to keep the surprises to a minimum.
[vjrook] "MY QUESTION: What are some internal changes that you have made (or can be made) in a small business to help maximize profit? This can apply to either the media industry or just small business in general. Practical "tricks of the trade" would be most appreciated..."
The best people to ask that question of are your own employees and principles. They can often point time wasting procedures or bottle-necks that hinder the bottom-line. Brainstorm the problem as if everyone's livelihood is on the line - which it is... We had a meeting like that while I was at a former employer - it was an epiphany for many though the problems were as plain as day AFTER the meeting.
1. Contracts - By using thorough, carefully crafted contracts that cover a variety of potential profit-sappers, we have been able to increase our profit margin quite a bit AND minimize disputes. I'm not talking about things that clients might object to, just making sure that the contract spells out exactly what the client will get for their money, and what is and is not covered under the agreement. If anyone objects to these types of provisions, you have just exposed a Grinder who is angry they won't be able to totally rob you. When people tell you they do business in this industry on a handshake, they are essentially admitting that they have no control over their profit margin.
2. Careful project planning - By spending the time to plan, script, board etc. you trim a lot of fat. Once you enter production each hour gets very expensive, so every hour of planning is worth pure gold. This includes things like having junior artists provide prep work for the more expensive senior artists, so their time is only spent doing the tasks that require their pricey skill set. All this planning also minimizes revision requests from the client since they have signed off on your storyboards etc.
3. Avoiding the Jonses - Some studios buy every new piece of software or gear out there, under the impression that all this stuff will make them look more impressive to their clients. They also do it under pressure from their artists, who insist that they simply can't go on without the newest version of something. Resist all of these impulses, and force yourself AND your team to financially justify every single purchase. If needed, your company should make purchases by committee. This way no single interest can dominate spending decisions.
Honestly, if your concern is weathering the coming year I would focus somewhat less on maximizing profit and more on getting a larger percentage of what work IS out there. You can only trim so much fat and you WILL be met with resistance doing so. It is also a long-term process since it requires organizational discipline and total buy-in from everyone. But if you set out to focus your efforts on business development, there is no ceiling and it's something your entire organization will get behind and support.
I'm with Weenie on this one. It's way to easy too to let little things nickel you to death.
Raise your rates 10% or more. Offer a 2% discount for net 10 on your usual 30 day accounts.
Offer more perks that look big but cost almost nothing. We've started to give away 10 DVD copies of the finished product. This costs me around $20 bucks it's a big thing to clients and puts them a bit indebted to you.
Put out a monthly newsletter using Constant Contact or another service.
Sell off any older gear that is lying around.
Get a better deal on your insurance.
Announce that you're going to have a company brainstorming session to increase the bottom line for next year. Give perks to those who come up with great, implementable ideas. because some people are very shy, accept suggestions in private or in writing if necessary.
As insane as this may sound, I pay bonuses for getting the job done earlier and saving the client money. I pass this info on to the client and let them know that "Bob's" extra effort saved them money. A good client will understand that you are putting their interests ahead of making a few dollars and they will tend to lock you in and send you more work. This has worked amazingly well for us over the years.
When I had an automotive shop, I gave free brake jobs to all of my steady clients. At first, my mechanics thought that I was completely insane but how would you feel if your mechanic did this for your wife or parents? My customers could not wait to send everyone they knew to me and I made a lot more than I gave away. I gave the parts away and my mechanics did the work for free. It's amazing how much you can honestly find wrong with a car when you've got it up on the lift and the wheels are off. The free part included shoes, pads seals and labor. The parts cost about 25 bucks and it look about an hour. That is cheap advertising. Above anything else, it showed that we were ethical in a rip-off industry.
Get rid of any client that is not a positive asset to your company.
We spend $10,000 a year on lunch and dinner for clients. It goes under "catering" and is 100% deductible. It's funny how you can usually get another hour or two in production or post when the client has had a great lunch.
It's a dry heat!
Sony HDCAM F-900 & HDW-2000/1 deck
5 Final Cut (not quite PRO) systems
Sony HVR-M25 HDV deck
Sony EX-1 on the way.
[Steve Wargo] "Get rid of any client that is not a positive asset to your company."
Bravo, Steve! While each of your ideas are right on the money, this observation is brilliant. It's almost always the hardest one to do but also the most necessary. Get the negative stuff and negative people out of your life as quickly as possible because they're only eating up time you should be spending on stuff that matters, jobs that you will be proud, new business you should be seeking and people you care about.
A great recent example of this have been posts about taking an ex-client to court over a few thousand dollars. What's the actual cost to a business for all the wasted days, sleepless nights and just plain lost mindshare? The answer is almost always CONSIDERABLY more than the disputed few thousands of dollars.
It's hard to push away a paying client even when they are difficult and cause problems. It's also hard to walk away from money you know that you've earned. But it's almost always FAR more important to learn from your mistakes then move on to better things. Preserve your sanity and preserve your attitude by not wasting time on negative stuff.
> Get rid of any client that is not a positive asset to your company.
I have to second, third, and fourth this sentiment. This year was a decent year for our new little company, and we got to convert a couple of clients we used to work with when we only did web design & development. Initially, that was a huge boon to our business. But then, one of those clients went through a sweeping staff change and turned into what we all know here as a "Grinder".
This Grinder did all the typical things a Grinder does, including not paying their bills. And they wanted a ton of free work, as Grinders do. In the end, we settled with them without going to court. Yes, we only got about half what they owed us. But the mental anguish and day to day frustration my poor editor and I were going through is now over. And I have to emphasize- how this Grinder was treating us rubbed off on how I was beginning to treat people. That's really not good, and I'm thankful I nipped that in the bud.
The very next day, we got a new client.
Funny how that works, isn't it?
Also, please listen to the guy who said revise your contracts: this year we added a simple clause to ours, where a client owes us 2% more than the invoice amount if it's +30 days, and 5% if it's +60 days late. You'd be shocked at how fast formerly slow-paying clients pay you! Throw in a 1% discount if they pay within 2 weeks, and blammo, instant improvement in cash flow.
A few years ago, my accountant started to 1099 non paying clients for money that they did not pay us. We had someone that owed us about $6500 and just couldn't seem to find the time to write the check.
The accountant 1099d him when the debt was 18 months old. We had written part of the invoice in December and the other half in January. This meant that he had to re-file for two tax years. Mr slow pay got audited. And he sent us a check. There IS more than one way to skin a dead beat.
It's a dry heat!
Sony HDCAM F-900 & HDW-2000/1 deck
5 Final Cut (not quite PRO) systems
Sony HVR-M25 HDV deck
Sony EX-1 on the way.
[Steve Wargo] "my accountant started to 1099 non paying clients"
Oh THAT is bordering on brilliant!
Fantastic Plastic Entertainment, Inc.
[Todd at Fantastic Plastic] "Oh THAT is bordering on brilliant!"
Bordering? That IS brilliant!!! Thanx, Steve!
Reminds me of the previously mentioned public threat for deadbeats - "Pay me or I'll tell all of your other creditors that you did."
Wow, I have never even thought about this as a possibility. I wonder why my accountant never gave us that option.